Can regulation on loan-loss-provisions for credit risk affect the mortgage market? Evidence from administrative data in Chile

Mauricio Calani

No 780, BIS Working Papers from Bank for International Settlements

Abstract: We argue that financial institutions responded by raising their acceptable borrowing standards on borrowers, enhancing the quality of their portfolio, but also contracting their supply of mortgage credit. We reach this conclusion by developing a stylized imperfect information model which we use to guide our empirical analysis. We conclude that the loan-to-value (LTV) ratio was 2.8% lower for the mean borrower, and 9.8% lower for the median borrower, because of the regulation. Our paper contributes to the literature on the evaluation of macro-prudential policies, which has mainly exploited cross-country evidence. In turn, our analysis narrows down to one particular policy in the mortgage market, and dissects its effects by exploiting unique administrative tax data on the census of all real estate transactions in Chilean territory, in the period 2012-2016.

Keywords: loan loss provisions; LTV; screening; coarsened exact matching; macroprudential policy (search for similar items in EconPapers)
JEL-codes: G21 R31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019-04
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (1)

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