The Anatomy of the Transmission of Macroprudential Policies

Abstract

We analyze how regulatory constraints on household leverage-in the form of loan-to-income and loan-tovalue limits-affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in "hot" housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.

Review of the Bank of Russia – NES workshop ‘Identification and measurement of macroprudential policies’ effects’

“…Penikas assesses the effect on bank lending in Russia (Penikas, 2021) and Madeira -the effect on industrial production in some countries (Madeira, 2020). Stefanie Behncke (Swiss National Bank) and Katharina Bergant (IMF) explore the impact of loan-to-value (LTV) restrictions in Switzerland (Behncke, 2020) and Ireland (Acharya et al, 2020) respectively. Behncke (2020) additionally takes into account the introduction of a CCyB in Switzerland in the same period.…”

“…When compared, the studies show the dilemma the authors seek to solve: the choice of shorter time periods with more homogeneous data or longer periods to obtain robust estimates of the parameters (the data may contain structural shifts in the second case). For example, Penikas (2021) and Acharya et al (2020) analyse the most homogeneous data, for Russia from 2015 to 2019 and for Ireland from 2013 to 2016 respectively. The other two papers presented at the workshop use data which have greater variation in time, indicators, and countries, but which are potentially more heterogeneous.…”

“…We note the granularity of the data used in Behncke (2020) and Acharya et al (2020). These data are granular to the level of specific retail loans and allow the authors to study the LTV effects for individual loans instead to being limited to averaged indicators.…”

“…These data are granular to the level of specific retail loans and allow the authors to study the LTV effects for individual loans instead to being limited to averaged indicators. Highlighting the conditions in which the decision was made to introduce macroprudential tools in Ireland, Katharina Bergant, in her presentation of the study by Acharya et al (2020), demonstrated the conditions under which the macroprudential measures had been introduced in Ireland, by citing the data indicating that the mortgage lending expansion in the country had clearly contributed to boosting of the housing prices. Figure 1 shows that real estate prices (solid green line) rise in parallel with rising mortgage lending (dotted blue line) and drop as mortgage lending drops, with approximately one-year lag.…”

“…The subjects of workshop participants' presentations included analysis of the impact of macroprudential tools on lending in Russia (Penikas, 2021), Switzerland (Behncke, 2020), and Ireland (Acharya et al, 2020) and insight into the effect of macroprudential policy measures on industrial output in a large sample of countries, based on data from international organisations (Madeira, 2020). vol.…”