Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Counter-Cyclical Capital Buffer
University of Zurich, Department of Economics, Working Paper No. 169
60 Pages Posted: 30 Jul 2014
Date Written: July 2014
We examine mortgage pricing before and after Switzerland was the first country to activate the Counter-Cyclical Capital Buffer of Basel III. Observing multiple mortgage offers per request, we obtain three core findings. First, capitalconstrained and mortgage-specialized banks raise their rates relatively more. Second, risk-weighting schemes supposed to discriminate against more risky borrowers do not amplify the effect of higher capital requirements. Third, CCB-subjected banks and CCB-exempt insurers raise mortgage rates, but insurers raise rates by on average 8.8 bp more. To conclude, lenders welcome the opportunity to increase mortgage rates, but stricter capital requirements do not discourage banks from risky mortgage lending.
Keywords: bank lending, mortgage market
JEL Classification: G21, E51
Suggested Citation: Suggested Citation