Housing Collateral Reform and Economic Reallocation

89 Pages Posted: 28 Jul 2020 Last revised: 27 Mar 2024

See all articles by Dimas Fazio

Dimas Fazio

National University of Singapore (NUS) - Department of Finance

Thiago Silva

Government of the Federative Republic of Brazil - Central Bank of Brazil

Date Written: June 23, 2021

Abstract

This paper investigates the spillover effects of improving creditor rights through a Brazilian reform that expanded the use of a collateral contract with superior repossession rights to home-backed, non-real estate loans. We find that stronger creditor protection results in a significant credit reallocation in the economy. Municipalities with higher homeownership experience increased credit, entrepreneurship, and employment. However, banks simultaneously restrict credit in low homeownership municipalities, adversely impacting economic activities. The credit reallocation is strongest for financially constrained banks, consistent with high external financing costs. Moreover, labor reallocates from low to high homeownership municipalities, demonstrating the reform's broad economic effects.

Keywords: creditor rights, home-backed loans, credit spillovers, financial constraints, entrepreneurship

JEL Classification: G21, K22, O16

Suggested Citation

Fazio, Dimas and Silva, Thiago, Housing Collateral Reform and Economic Reallocation (June 23, 2021). Available at SSRN: https://ssrn.com/abstract=3641680 or http://dx.doi.org/10.2139/ssrn.3641680

Dimas Fazio (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

Thiago Silva

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

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