Can Regulation on Loan-Loss-Provisions for Credit Risk Affect the Mortgage Market? Evidence from Administrative Data in Chile

35 Pages Posted: 23 Apr 2019

Date Written: September 2018

Abstract

We argue that financial institutions responded by raising their acceptable borrowing standards on borrowers, enhancing the quality of their portfolio, but also contracting their supply of mortgage credit. We reach this conclusion by developing a stylized imperfect information model which we use to guide our empirical analysis. We conclude that the loan-to-value (LTV) ratio was 2.8% lower for the mean borrower, and 9.8% lower for the median borrower, because of the regulation. Our paper contributes to the literature on the evaluation of macro-prudential policies, which has mainly exploited cross-country evidence. In turn, our analysis narrows down to one particular policy in the mortgage market, and dissects its effects by exploiting unique administrative tax data on the census of all real estate transactions in Chilean territory, in the period 2012-2016.

Keywords: Loan Loss Provisions, LTV, Screening, Coarsened Exact Matching, Macroprudential Policy

JEL Classification: G21, R31

Suggested Citation

Calani Cadena, Miguel Mauricio, Can Regulation on Loan-Loss-Provisions for Credit Risk Affect the Mortgage Market? Evidence from Administrative Data in Chile (September 2018). BIS Working Paper No. 780. Available at SSRN: https://ssrn.com/abstract=3374633

Miguel Mauricio Calani Cadena (Contact Author)

Central Bank of Chile ( email )

1180 Agustinas St
United States
6702770 (Phone)

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