How Does Bank Capital Affect the Supply of Mortgages? Evidence from a Randomized Experiment

44 Pages Posted: 8 Apr 2016

Multiple version iconThere are 2 versions of this paper

Date Written: April 2016

Abstract

We study the effect of bank capital on the supply of mortgages. We fully control for endogenous matching between borrowers, loan contracts, and banks by submitting randomized mortgage applications to the major online mortgage broker in Italy. We find that higher bank capital is associated with a higher likelihood of application acceptance and lower offered interest rates; banks with lower capital reject applications by riskier borrowers and offer lower rates to safer ones. Finally, nonparametric estimates of the probability of acceptance and of the offered rate show that the effect of bank capital is stronger when capital is low.

Keywords: Mortgages, banks, household finance, randomized experiment

JEL Classification: G21, D14

Suggested Citation

Michelangeli, Valentina and Sette, Enrico, How Does Bank Capital Affect the Supply of Mortgages? Evidence from a Randomized Experiment (April 2016). BIS Working Paper No. 557, Available at SSRN: https://ssrn.com/abstract=2758732

Valentina Michelangeli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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