Illusive compliance and elusive risk-shifting after macroprudential tightening: Evidence from EU banking

Michael Koetter, Felix Noth and Carl Fabian Wöbbeking

No 4/2025, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We study whether and how EU banks comply with tighter macroprudential policy (MPP). Observing contractual details for more than one million securitized loans, we document an elusive risk-shifting response by EU banks in reaction to tighter loan-to-value (LTV) restrictions between 2009 and 2022. Our staggered difference-in-differences reveals that banks respond to these MPP measures at the portfolio level by issuing new loans after LTV shocks that are smaller, have shorter maturities, and show a higher collateral valuation while holding constant interest rates. Instead of contracting aggregate lending as intended by tighter MPP, banks increase the number and total volume of newly issued loans. Importantly, new loans finance especially properties in less liquid markets identified by a new European Real Estate Index (EREI), which we interpret as a novel, elusive form of risk-shifting.

Keywords: European Real Estate Index; LTV; macroprudential policy; risk shifting (search for similar items in EconPapers)
JEL-codes: H30 R00 R31 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cba and nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:311202

DOI: 10.18717/dp8vbg-3v09

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