How Does Bank Capital Affect the Supply of Mortgages? Evidence from a Randomized Experiment
44 Pages Posted: 8 Apr 2016
Date Written: April 2016
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: Suggested Citation