Assessing Targeted Macroprudential Financial Regulation: The Case of the 2006 Commercial Real Estate Guidance for Banks

61 Pages Posted: 26 Jul 2014

See all articles by William F. Bassett

William F. Bassett

Board of Governors of the Federal Reserve System (FRB)

W. Blake Marsh

Federal Reserve Bank of Kansas City

Date Written: June 14, 2016

Abstract

In January 2006, federal regulators issued guidance requiring banks with specific high concentrations of commercial real estate (CRE) loans to tighten managerial controls. This paper shows that banks with concentrations in excess of the thresholds set in the guidance subsequently experienced slower growth in their CRE portfolios than can be explained by changes in bank or economic conditions. Moreover, banks above the CRE thresholds tended to have slower commercial and industrial loan growth but faster household loan growth following issuance of the guidance. The results highlight the potentially broad influence that portfolio-based macroprudential regulation might have on bank behavior.

Keywords: Credit channel, government regulation, bank lending, real estate

JEL Classification: E32, E44, G21, G28

Suggested Citation

Bassett, William F. and Marsh, Blake, Assessing Targeted Macroprudential Financial Regulation: The Case of the 2006 Commercial Real Estate Guidance for Banks (June 14, 2016). FEDS Working Paper No. 2014-49. Available at SSRN: https://ssrn.com/abstract=2471159 or http://dx.doi.org/10.2139/ssrn.2471159

William F. Bassett

Board of Governors of the Federal Reserve System (FRB) ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Blake Marsh (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Drive
Kansas City, MO 64198
United States

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