Capital requirements, risk shifting and the mortgage market

Arzu Uluc and Tomasz Wieladek

No 572, Bank of England working papers from Bank of England

Abstract: We study the effect of changes to bank-specific capital requirements on mortgage loan supply with a new loan-level data set containing all mortgages issued in the United Kingdom between 2005 Q2 and 2007 Q2. We find that a rise of a 100 basis points in capital requirements leads to a 5.4% decline in individual loan size by bank. Loans issued by competing banks rise by roughly the same amount, which is indicative of credit substitution. Borrowers with an impaired credit history (verified income) are not (most) affected. This is consistent with origination of riskier loans to grow capital by raising retained earnings. No evidence for credit substitution of non-bank finance companies is found.

Keywords: Capital requirements; loan-level data; mortgage market; credit substitution. (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-12-18
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Capital requirements, risk shifting and the mortgage market (2017)
Working Paper: Capital Requirements, Risk Shifting and the Mortgage Market (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0572

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