The Impact of Global Financial Crisis on Mortgage Pricing and Credit Supply

Abstract

This paper uses high frequent product-level data to study the pricing and sales of home mortgages in Australia, focusing on the impact of the Global Financial Crisis (GFC). The study finds responses to a monetary shock vary substantially across financial institutions and big banks lead in price setting. The GFC significantly changed the pricing behavior, showing substitution between short-term interest rate adjustment and long-term error amendment throughout the GFC. The effects of the GFC on a bank’s pricing strategy and mortgage business expansion are closely related to its size, asset base and deposit sources and these effects are more prominent for big banks.

Keywords: Banking, Credit, Global Financial Crisis, Liquidity, Mortgage Pricing

JEL Classification: G21, G28, L11