scholarly journals The strategic response of banks to macroprudential policies: Evidence from mortgage stress tests in Canada

2021 ◽  
Author(s):  
Robert Clark ◽  
Shaoteng Li
Keyword(s):  
Interest Rate ◽  
Credit Markets ◽  
Mortgage Market ◽  
Financial Intermediaries ◽  
Stress Tests ◽  
Difference In Differences ◽  
Strategic Response ◽  
Macroprudential Policies ◽  
The Interest Rate

Abstract Following the crisis, macroprudential regulations targeting mortgage-market vulnerabilities were widely adopted, their success often relying on the response of financial intermediaries. We provide evidence from Canada suggesting banks may have behaved strategically to limit the effectiveness of recently implemented mortgage stress tests. Before implementation, borrowers had to prove they could make mortgage payments based on the interest rate specified in the contract. The new tests require borrowers to show they can afford payments based on a typically higher qualifying rate, derived from the mode of 5-year rates posted by the six largest banks. The government’s objective was to cool credit markets, but, since many mortgages are government-insured, the big banks’ interests were not aligned. We find evidence of rate manipulation using a difference-in-differences approach comparing changes in spreads for 5-year mortgages with 3-year spreads, unaffected by the policy. The qualifying rates were lowered encouraging continued borrowing, muting the tests’ impact.

Crawford Development Co. and Southeast Bank of Texas

2007 ◽  
pp. 1-10
Author(s):  
Anton Ovchinnikov ◽  
Elena Loutskina ◽  
Casey Lichtendahl ◽  
Jayson Lipsey ◽  
Brian Burke
Keyword(s):  
Interest Rate ◽  
Real Estate ◽  
Financial Crises ◽  
Mortgage Market ◽  
Commercial Development ◽  
Residential Market ◽  
The Interest Rate ◽  
To Receive ◽  
Real Estate Financing

In the early months of the 2007-08 financial crises, a loan manager faces a real estate financing decision. Should he approve a bullet structure three-year loan to a longstanding client, a legendary Texan developer? The developer, who near retirement downsized his business, is seeking financing for his only project: residential or commercial development on an attractive piece of land in suburban Houston. The loan manager considers the decision in light of the mortgage market turmoil, seeing commercial projects as safer, but also factoring that the residential market could bring higher returns if the market stabilizes soon. The manager collects the data and asks an analyst to assess the risks; that ultimately requires assessing the economics of both projects from both the bank’s and the developer’s perspectives. The bank could still change the interest rate on the loan to receive adequate compensation for the risk it carries, but the loan manager knows that doing so will change their long-term client willingness to take on the loan.

scholarly journals Liquidity Trap and Excessive Leverage

2016 ◽  
Vol 106 (3) ◽  
pp. 699-738 ◽  
Author(s):  
Anton Korinek ◽  
Alp Simsek
Keyword(s):  
Interest Rate ◽  
Aggregate Demand ◽  
Liquidity Trap ◽  
Interest Rate Policy ◽  
Macroprudential Policies ◽  
Ex Ante ◽  
Rate Policy ◽  
The Interest Rate ◽  
Insurance Decisions

We investigate the role of macroprudential policies in mitigating liquidity traps. When constrained households engage in deleveraging, the interest rate needs to fall to induce unconstrained households to pick up the decline in aggregate demand. If the fall in the interest rate is limited by the zero lower bound, aggregate demand is insufficient and the economy enters a liquidity trap. In this environment, households' ex ante leverage and insurance decisions are associated with aggregate demand externalities. Welfare can be improved with macroprudential policies targeted toward reducing leverage. Interest rate policy is inferior to macroprudential policies in dealing with excessive leverage. (JEL D14, E23, E32, E43, E52, E61, E62)

A Tale of “Benevolent” Governments: Private Credit Markets, Public Finance, and the Role of Jewish Lenders in Medieval and Renaissance Italy

2000 ◽  
Vol 60 (1) ◽  
pp. 164-189 ◽  
Author(s):  
Maristella Botticini
Keyword(s):  
Public Finance ◽  
Interest Rate ◽  
Credit Markets ◽  
Working Capital ◽  
The Public ◽  
Private Credit ◽  
Renaissance Italy ◽  
The Interest Rate ◽  
The Impact

This article illustrates the impact of Jewish lenders on private credit markets and public finance in medieval and Renaissance Italian towns. In Tuscan private credit markets, Jewish lending helped households to smooth consumption, buy working capital, and provide dowries for daughters. Jewish lenders also helped the public fmances of the communes in which they resided. This article shows that public-finance considerations affected the choice of the interest-rate ceiling Jews were allowed to charge. In many instances, the communes raised the interest-rate ceiling for Jewish lenders in order to tax or borrow the proceeds.

Crawford Development Co. and Southeast Bank of Texas

2017 ◽  
pp. 1-10
Author(s):  
Anton S. Ovchinnikov ◽  
Elena Loutskina
Keyword(s):  
Interest Rate ◽  
Real Estate ◽  
Financial Crises ◽  
Mortgage Market ◽  
Commercial Development ◽  
Residential Market ◽  
The Interest Rate ◽  
To Receive ◽  
Real Estate Financing

In the early months of the 2007-08 financial crises, a loan manager faces a real estate financing decision. Should he approve a bullet structure three-year loan to a longstanding client, a legendary Texan developer? The developer, who near retirement downsized his business, is seeking financing for his only project: residential or commercial development on an attractive piece of land in suburban Houston. The loan manager considers the decision in light of the mortgage market turmoil, seeing commercial projects as safer, but also factoring that the residential market could bring higher returns if the market stabilizes soon. The manager collects the data and asks an analyst to assess the risks; that ultimately requires assessing the economics of both projects from both the bank's and the developer's perspectives. The bank could still change the interest rate on the loan to receive adequate compensation for the risk it carries, but the loan manager knows that doing so will change their long-term client willingness to take on the loan.

scholarly journals MONETARY POLICY AND RESERVE REQUIREMENTS IN A SMALL OPEN ECONOMY

2020 ◽  
pp. 1-34
Author(s):  
Jose Angelo Divino ◽  
Carlos Haraguchi
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Macroprudential Policy ◽  
Monetary Policies ◽  
Reserve Requirements ◽  
Macroprudential Policies ◽  
The Exchange Rate ◽  
The Interest Rate

This paper investigates how a combination of monetary and macroprudential policies might affect the dynamics of a small open economy (SOE) with financial frictions under alternative discretionary shocks. Discretionary shocks in productivity and domestic and foreign monetary policies identify the roles of alternative interest rate and reserve requirement rules to stabilize the economy. The model is calibrated for the Brazilian economy. The exchange rate channel of transmission is relevant for foreign but not for domestic shocks. The interest rate rule should target domestic inflation and should not react to the exchange rate. The countercyclical reserve requirements rule, in its turn, should aggressively react to the credit-gap and not include a fixed component. Under both domestic and foreign shocks, the countercyclical effectiveness of the macroprudential policy improves when the degree of openness increases. There is a complementarity between monetary and macroprudential policy rules to stabilize the SOE.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

DETERMINAN INFLASI DI INDONESIA PERIODE 1980-2015

2016 ◽  
Vol 21 (1) ◽  
pp. 1-7
Author(s):  
Risna Risna
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Government Spending ◽  
Positive Impact ◽  
Secondary Data ◽  
Quantitative Approach ◽  
State Spending ◽  
Factors Affecting ◽  
The Interest Rate

This study aims to determine the effect of government spending, the money supply, the interest rate of Bank Indonesia against inflation.This study uses secondary data. Secondary data were obtained directly from the Central Bureau of Statistics and Bank Indonesia. It can be said that there are factors affecting inflationas government spending, money supply, and interest rates BI. The reseach uses a quantitative approach to methods of e-views in the data. The results of analysis of three variables show that state spending significantand positive impact on inflationin Indonesia, the money supply significantand negative to inflationin Indonesia, BI rate a significantand positive impact on inflation in Indonesia

Insurance Companies and the Interest Rate

1953 ◽  
Vol 9 (4) ◽  
pp. 15-17
Author(s):  
Shelby Cullom Davis
Keyword(s):  
Interest Rate ◽  
Insurance Companies ◽  
The Interest Rate

Analyzing the financial and economic momentum as a result of changes in the interest rate

2020 ◽  
Vol 16 (9) ◽  
pp. 1656-1673
Author(s):  
V.V. Smirnov
Keyword(s):  
Interest Rate ◽  
Natural Gas ◽  
Central Bank ◽  
Crude Oil ◽  
Oil Prices ◽  
Global Capitalism ◽  
Positive Effects ◽  
Russian Economy ◽  
Oil And Natural Gas ◽  
The Interest Rate

Subject. The article discusses financial and economic momenta. Objectives. I determine financial and economic momenta as the interest rate changes in Russia. Methods. The study is based on a systems approach and the method of statistical analysis. Results. The Russian economy was found to strongly depend on prices for crude oil and natural gas, thus throwing Russia to the outskirts of the global capitalism, though keeping the status of an energy superpower, which ensures a sustainable growth in the global economy by increasing the external consumption and decreasing the domestic one. The devaluation of the national currency, a drop in tax revenue, etc. result from the decreased interest rate. They all require to increase M2 and the devalued retail loan in RUB, thus rising the GDP deflator. As for positive effects, the Central Bank operates sustainably, replenishes gold reserves and keeps the trade balance (positive balance), thus strengthening its resilience during a global drop in crude oil prices and the COVID-19 pandemic. The positive effects were discovered to result from a decreased in the interest rate, rather than keeping it low all the time. Conclusions and Relevance. As the interest rate may be, the financial and economic momentum in Russia depends on the volatility of the price for crude oil and natural gas. Lowering the interest rate and devaluing the national currency, the Central Bank preserves the resource structure of the Russian economy, strengthens its positions within the global capitalism and keeps its status of an energy superpower, thus reinforcing its resilience against a global drop in oil prices.

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