The Anatomy of the Transmission of Macroprudential Policies

Acharya, Viral V.; Bergant, Katharina; Crosignani, Matteo; Eisert, Tim; McCann, Fergal J.

doi:10.2139/ssrn.3388963

The Anatomy of the Transmission of Macroprudential Policies

49 Pages Posted: 4 Jun 2019

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

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: 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