Illusive Compliance and Elusive Risk-shifting after Macroprudential Tightening: Evidence from EU Banking
Michael Koetter, Felix Noth, Fabian Wöbbeking
IWH Discussion Papers,
No. 4,
2025
Abstract
We study whether and how EU banks comply with tighter macroprudential policy (MPP). Observing contractual details for more than one million securitized loans, we document an elusive risk-shifting response by EU banks in reaction to tighter loan-to-value (LTV) restrictions between 2009 and 2022. Our staggered difference-in-differences reveals that banks respond to these MPP measures at the portfolio level by issuing new loans after LTV shocks that are smaller, have shorter maturities, and show a higher collateral valuation while holding constant interest rates. Instead of contracting aggregate lending as intended by tighter MPP, banks increase the number and total volume of newly issued loans. Importantly, new loans finance especially properties in less liquid markets identified by a new European Real Estate Index (EREI), which we interpret as a novel, elusive form of risk-shifting.
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Research Data Centre
Research Data Centre (IWH-RDC) Direct link to our Data Offer The IWH Research Data Centre offers external researchers access to microdata and micro-aggregated data sets that…
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Research Clusters
Three Research Clusters Research Cluster "Economic Dynamics and Stability" Research Questions This cluster focuses on empirical analyses of macroeconomic dynamics and stability.…
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Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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Financial Stability
Financial Systems: The Anatomy of the Market Economy How the financial system is constructed, how it works, how to keep it fit and what good a bit of chocolate can do. Dossier In…
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Brown Bag Seminar
Brown Bag Seminar Financial Markets Department The seminar series "Brown Bag Seminar" was offered on a regular basis by members of the Financial Markets department and their…
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What Makes the Difference? Microfinance Versus Commercial Banks
Afsheen Abrar, Iftekhar Hasan, Rezaul Kabir
Borsa Istanbul Review,
No. 4,
2023
Abstract
We make a comparison of microfinance banks (MBs) and commercial banks (CBs) in terms of efficiency, business orientation, stability, and asset quality by analyzing a large sample of banks from 60 countries around the world. Our findings indicate that microfinance banks have higher intermediation, non-interest income, wholesale funding and liquidity, but lower efficiency and asset quality. These significant variations are influenced by smaller microfinance banks and are driven mostly to African and Latin American microfinance banks.
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Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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European Real Estate Prices
Michael Koetter, Felix Noth
IWH Technical Reports,
No. 3,
2022
Abstract
Real estate markets are pivotal to financial stability given their dual role as the underlying asset of crucial financial products in financial systems, such as mortgage loans and asset-backed securities, and the primary source of household wealth alike. As such, they also play traditionally a crucial role for the transmission of monetary policy. Imbalances and sudden corrections in real estate markets have been the root cause of many financial crises over the last decades. But whereas some national, often survey-based indicators of real estate prices are provided by central banks and statistical offices, a comprehensive collection of purchase prices, rents, and proxies for the liquidity of European real estate markets is lacking. The IWH European Real Estate Index (EREI) seeks to fill this void for residential property. This technical report describes the gathering and processing of sale and rental prices for properties in 18 European countries. We provide the general scrapeing step in the section before describing country-specific details for each country in separated sub-sections.
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Surges and Instability: The Maturity Shortening Channel
Xiang Li, Dan Su
Journal of International Economics,
November
2022
Abstract
Capital inflow surges destabilize the economy through a maturity shortening mechanism. The underlying reason is that firms have incentives to redeem their debt on demand to accommodate the potential liquidity needs of global investors, which makes international borrowing endogenously fragile. Based on a theoretical model and empirical evidence at both the firm and macro levels, our main findings are twofold. First, a significant association exists between surges and shortened corporate debt maturity, especially for firms with foreign bank relationships and higher redeployability. Second, the probability of a crisis following surges with a flattened yield curve is significantly higher than that following surges without one. Our study suggests that debt maturity is the key to understand the financial instability consequences of capital inflow bonanzas.
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