Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Countercyclical Capital Buffer (CCB)

58 Pages Posted: 2 Sep 2015

See all articles by Christoph Basten

Christoph Basten

University of Zurich; Swiss Finance Institute; CESifo (Center for Economic Studies and Ifo Institute)

Cathérine Koch

Bank for International Settlements (BIS)

Date Written: September 2015

Abstract

How has the CCB affected mortgage pricing after Switzerland became the first country to activate this Basel III macroprudential tool? By analyzing a database with several offers per mortgage request, we construct a picture of mortgage supply and demand. We find, first, that the CCB changes the composition of mortgage supply, as relatively capital-constrained and mortgage-specialized banks raise prices more than their competitors do. Second, risk-weighting schemes linked to borrower risk do not amplify the CCB's effect. To conclude, changes in the supply composition suggest that the CCB has achieved its intended effect in shifting mortgages from less resilient to more resilient banks, but stricter capital requirements do not appear to have discouraged less resilient banks from risky mortgage lending.

Keywords: banks, macroprudential policy, capital requirements, mortgage pricing

JEL Classification: E44, E5, G21, G28

Suggested Citation

Basten, Christoph and Koch, Catherine, Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Countercyclical Capital Buffer (CCB) (September 2015). BIS Working Paper No. 511. Available at SSRN: https://ssrn.com/abstract=2654758

Christoph Basten (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute

c/o University of Geneva
40 Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Catherine Koch

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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