Loan-to-Value Ratio as a Macroprudential Tool - Hong Kong's Experience and Cross-Country Evidence

Wong, T. C.; Fong, Tom; Li, Ka-Fai; Choi, Henry Sze Hang

doi:10.2139/ssrn.1768546

Cited by 126 publications

(107 citation statements)

References 9 publications

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“…Second, it uses a number of different techniques to isolate the differences in behavior of mortgage markets between economies that use or do not use LTVs. We go beyond the linear specification, in similar spirit to Wong et al (2011). The findings generally support those of other studies that LTV ratios can reduce the overall growth rate of housing loans and thereby contribute to financial and economic stability.…”

Section: Introductionsupporting

confidence: 81%

“…Wong et al (2011) examined the impact of LTV on mortgage delinquency ratios and various measures of property market activity, including property prices and household leverage. In a panel study of 13 economies, they found that the presence of LTV significantly reduced mortgage delinquency ratios.…”

Section: Effectiveness Of Loan-to-value As a Macroprudential Tool: Exmentioning

confidence: 99%

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Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Working papers are subject to formal revision and correction before they are finalized and considered published.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan AbstractCredit creation in the housing market has been a key source of systemic financial risk, and therefore is at the center of the debate on macroprudential policies. The loan-to-value (LTV) ratio is a widely used macroprudential tool aimed at moderating mortgage loan creation, and its effectiveness needs to be estimated empirically. This paper is unique in that it analyzes the effect of LTV on mortgage lending, the direct channel of influence, using a large sample of banks in 10 Asian economies. It uses estimation techniques to deal with the large presence of outliers in the data. Robust-to-outlier estimations show that economies with LTV polices have expanded residential mortgage loans by 6.7% per year, while non-LTV economies have expanded by 14.6%, which suggests LTV policies have been effective.

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Section: Introductionsupporting

confidence: 81%

Section: Effectiveness Of Loan-to-value As a Macroprudential Tool: Exmentioning

confidence: 99%

Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia

2015

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“…Christensen, Meh, and Moran (2011) examine countercyclical capital ratio requirements; and Gelain, Lansing, and Mendicin (2013);and Walentin (2014) derive models for setting up a countercyclical LTV ratio based on a specific feedback rule. Crowe et al (2011) delve into a timevarying LTV regulation, and Funke and Paetz (2013) and Wong et al (2011) both estimate a DSGE model specifically for Hong Kong, China. Aiyar, Calomiris, and Wieladek (2012) examined the effect that the time-varying minimum capital requirement introduced in the United Kingdom (UK) had on credit growth and also investigated the degree of regulatory arbitrage resulting from the introduction of new regulations.…”

Section: ) Restrictions On Profit Distributionmentioning

confidence: 99%

Effectiveness of Macroprudential Policies in Developing Asia: An Empirical Analysis

Lee

Asuncion

Kim

2015

Emerging Markets Finance and Trade

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The views expressed in this paper are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. Terms of use: Documents inADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.By making any designation of or reference to a particular territory or geographic area, or by using the term "country" in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. Notes: 1. In this publication, "$" refers to US dollars. 2. ADB recognizes "China" as the People's Republic of China and "Hong Kong" as Hong Kong, China.The ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.

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“…However, the provisioning did not contribute sufficiently to stopping the credit boom in good times (see Saurina 2009). Using sectoral micro-data, Wong et al (2011) and Igan & Kang (2011) show that the LTV and DTI ratio caps effectively decreased the systemic risk caused by house price cycles in Hong Kong and Korea. Aiyar et al (2014) examines micro evidence using a UK data set for the period 1998-2007.…”

Section: Empirical Studies On Macroprudential Policymentioning

confidence: 99%

Macroprudential Policy: A Blessing or a Curse?

Popoyan

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractAfter the destructive impact of the global financial crisis of 2008, many believe that pre-crisis financial market regulation did not take the "big picture" of the system sufficiently into account and, subsequently, financial supervision mainly "missed the forest for the trees." As a result, the need for macroprudential aspects of regulation emerged, which has recently become the focal point of many policy debates. This has also led to intense discussion on the contours of monetary policy after the post-crisis "new normal." Here, I review recent progress in empirical and theoretical research on the effectiveness of macroprudential tools, as well as the current state of the debate, in order to extract common policy conclusions. The work highlights that, despite the achievements in the literature, the current experience and knowledge of how macroprudential instruments work, their calibration, and the mechanisms through which they interact with each other and with monetary policy are rather limited and conflicting. Moreover, I critically survey and note the current challenges faced by macroprudential regulation in creating stable, yet efficient financial systems. At the same time, I emphasize the importance of accepting that many risks may remain, requiring that we proceed prudently and develop better plans for future crises.

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Loan-to-Value Ratio as a Macroprudential Tool - Hong Kong's Experience and Cross-Country Evidence

Cited by 126 publications

References 9 publications

Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia

Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia

Effectiveness of Macroprudential Policies in Developing Asia: An Empirical Analysis

Macroprudential Policy: A Blessing or a Curse?

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