The Anatomy of the Transmission of Macroprudential Policies

49 Pages Posted: 4 Jun 2019

See all articles by Viral V. Acharya

Viral V. Acharya

New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Katharina Bergant

Trinity College (Dublin); Harvard University - Harvard Kennedy School (HKS)

Matteo Crosignani

University of Michigan at Ann Arbor - Finance

Tim Eisert

Erasmus University Rotterdam (EUR)

Fergal J. McCann

Central Bank of Ireland

Date Written: May 15, 2019

Abstract

We analyze the effect of regulatory limits on household leverage on residential mortgage credit, house prices, and banks' portfolio choice. Combining supervisory loan level and house price data, we examine the introduction of loan-to-income and loan-to-value limits on residential mortgages in Ireland. Mortgage credit is reallocated from low- to high-income borrowers and from high- to low-house price appreciation areas, cooling down, in turn, "hot" housing markets. Consistent with a bank portfolio choice channel, banks more affected by the limits drive this reallocation and increase their risk-taking in their securities holdings and corporate credit, two asset classes not targeted by the policy.

Keywords: Macroprudential Regulation, Household Leverage, Residential Mortgage Credit, House Prices

JEL Classification: G21, E21, E44, E58, R21

Suggested Citation

Acharya, Viral V. and Bergant, Katharina and Crosignani, Matteo and Eisert, Tim and McCann, Fergal J., The Anatomy of the Transmission of Macroprudential Policies (May 15, 2019). Available at SSRN: https://ssrn.com/abstract=3388963 or http://dx.doi.org/10.2139/ssrn.3388963

Viral V. Acharya

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Katharina Bergant

Trinity College (Dublin) ( email )

2-3 College Green
Dublin, Leinster
Ireland

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Matteo Crosignani

University of Michigan at Ann Arbor - Finance ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

Tim Eisert (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Fergal J. McCann

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

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