1. Publications
  2. IWH Discussion Papers, 4/2025
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Contractionary Macroprudential Policy, Collateral Valuation, and Risk-shifting in EU Banking

We study real estate lending responses to tighter macroprudential policy (MPP) in the form of lower required loan-to-value (LTV) ratios. Contract details of 2.4 million mortgage loans originated between 2008 and 2020 reveal significantly fewer new loan issuances in response to contractionary MPP, commensurate with an average reduction in aggregate lending of 21 percent. Loan-level analyses reveal, however, that banks comply with lower LTVs by systematically more benevolent valuations of residential real estate pledged as collateral instead of reducing loan size. Exploiting earthquakes as plausible exogenous shocks to property values corroborates these risk-shifting patterns by banks in the form of inflated property valuations after LTV shocks.

13. February 2025

Authors Michael Koetter Felix Noth Fabian Woebbeking

https://doi.org/10.18717/dp8vbg-3v09

See Publication

Keywords

loan-to-value cap macroprudential policy risk-shifting collateral valuation

JEL Classification

G01 G21 G28 R31

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Professor Dr Felix Noth
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