The interest rate pass‐through describes how changes in a reference rate (the monetary policy, money market or T‐bill rate) transmit to bank lending rates. We review the empirical literature on the ...interest rate pass‐through and systematize it by means of meta‐analysis and meta‐regressions. Using the pass‐through to corporate lending rates as the baseline, we find systematically lower estimated pass‐through coefficients in studies that focus on the pass‐through to consumer lending rates and rates on long‐term loans. Also studies estimating the pass‐through by averaging all lending rates into one category report a lower pass‐through. Importantly, the interest rate pass‐through is significantly influenced by the country's macro‐financial environment. In economies with deepening stock markets, the estimated pass‐through strengthens significantly. Interestingly, after the global financial crisis, the pass‐through weakened across the board, including because of growing trade openness and supply chain financing, rising volatility and stock market turnovers, as well as declining central bank independence. Inflation targeting frameworks, if in place, helped diminish this pass‐through weakening.
•We study the effects of value-based (LTV) and income-based (DTI, DSTI) prudential limits on new loans secured by residential property.•We provide comparative evidence on the effects of applying LTV ...limits separately and then jointly with DTI and DSTI limits.•The combination of value-based and income-based limits is found to be much more effective in cooling the residential mortgage loan market than using value-based (LTV) limits alone.•Borrower, loan, bank and regional characteristics are found to play an important role in transmitting the varied effects of the regulatory limits.
This paper studies the effects of regulatory measures concerning maximum loan-to-value (LTV), debt-to-income (DTI), and debt service-to-income ratios (DSTI) on new loans secured by residential property. It uses loan-level regulatory survey data on about 82,000 newly granted residential mortgage loans in Czechia from 2016 to 2019 to estimate the average effects of regulatory measures and their heterogeneous effects depending on borrower, loan, bank, and regional characteristics. We find that the LTV limits decreased the mortgage loan size only slightly, while the value of collateral securing the loans increased. Only the additional DTI and DSTI limits helped reduce the average loan size significantly and prompted more risk-sensitive pricing that heighten the average lending rate. The mortgage market response to the limits appears heterogeneous in loan size rather than pricing or collateralization. The loan size reduction varied with the borrower’s income, age, and location. High-income, high-repayment, and 25 to 35 years old borrowers reduced their contracted loan size more. Borrowers located in regions with higher GDP per capita and lower unemployment rates reduced the contracted loan size more. Longer-maturity loans showed a greater drop in the contracted loan size.
Equilibrium credit is an important concept because it helps to identify excessive credit provision in an economy. This paper proposes a structural approach to determine equilibrium credit which is ...based on the long-run through-the-cycle transaction demand for credit. Using a panel data set consisting of 49 high and middle-income countries from 1980 to 2010, we show that there exists considerable variation in the cross-country estimates of the income and price elasticities of credit and that the unit elasticity restriction implicitly imposed by the credit-to-GDP ratio is strongly rejected by the data. This suggests that the credit-to-GDP ratio is not appropriate to measure equilibrium credit. We show further that the cross-sectional variation in the income and price elasticities of credit can be related to a set of relevant economic, financial and institutional development indicators of a country. The main determinants that explain the cross-sectional variation in the income and price elasticities are financial depth, access to financial services, use of capital markets, efficiency and funding of domestic banks, central bank independence, the degree of supervisory integration, and the experience of a financial crisis. As an empirical illustration, we compute equilibrium credit and credit gaps for eleven new EU member states using our structural framework and compare it to credit gaps based on the Basel III approach.
This paper assesses how changes in the monetary policy rate affect the lending rates for the small and medium enterprise (SME), consumer, mortgage, and corporate loans in the Czech Republic—a ...high-income, OECD country. It further examines whether such interest rate pass-through is stable or could vary at different levels of bank competition, leverage, non-performing loans, and foreign exchange (FX) interventions. Using the co-integration approach, we find a significant and complete pass-through for SME lending rates. For consumer lending rates, we estimate the pass-through as unreliable. For both the mortgage and corporate rates, the pass-through shows significant structural shifts that can be entirely and largely explained by bank deleveraging. The markup for all lending rates, except for the corporate rates, increases with a growing spread between the government bond and monetary policy rates. FX interventions mostly affect the markups for corporate and SME rates.
•We assess how the monetary policy rate affects retail and corporate lending rates in the Czech Republic.•We allow the pass-through to possibly vary with the changing macro-financial environment (determinants).•We find a complete pass-through for SME lending rates, and an unreliable pass-through for consumer lending rates.•We identify significant structural shifts in the pass-through for mortgage and corporate lending rates.•These structural shifts can be entirely and largely explained by bank deleveraging (level of capitalization).
► We propose a new policy-oriented approach to macroprudential stress testing. ► Country specifics and cross-country experience drive macroeconomic stress scenarios. ► We capture the effects of ...foreign currency exposures and lending concentration. ► Relative lending aggressiveness traces varying credit standards across banks and assets. ► To measure bank resilience, we use the economic risk-based capital ratio.
Drawing on the lessons from the global financial crisis and especially from its impact on the banking systems of Eastern Europe, the paper proposes a new practical approach to macroprudential stress testing. The proposed approach incorporates: (i) macroeconomic stress scenarios generated from both a country specific statistical model and historical cross-country crises experience; (ii) indirect credit risk due to foreign currency exposures of unhedged borrowers; (iii) varying underwriting practices across banks and their asset classes based on their relative aggressiveness of lending; (iv) higher correlations between the probability of default and the loss given default during stress periods; (v) a negative effect of lending concentration and residual loan maturity on unexpected losses; and (vi) the use of an economic risk weighted capital adequacy ratio as the relevant outcome indicator to measure the resilience of banks to materializing credit risk. The authors apply the proposed approach to a set of Eastern European banks and discuss the results.
•We study financial services supervisory structures over the past decade for 98 countries.•Countries integrate supervisory structures as their income and public governance improve.•Small open ...economies exposed to liquidity risk integrate prudential supervision relatively more.•Experience of financial crises encourages greater integration of financial services supervision.•Concentrated and profitable banking sectors resist integration of business conduct supervision.
This paper studies institutional structures of prudential and business conduct supervision of financial services in 98 high and middle income countries over the past decade. It identifies possible drivers of changes in these supervisory structures using the panel ordered probit analysis. The results show that (i) more developed, small open economies with better public governance tend to integrate their supervision, especially the prudential one; (ii) more financially developed countries integrate more their supervision; however, greater development of the non-bank financial system leads to less integrated prudential supervision but not business conduct supervision; (iii) the lobbying power of concentrated and highly profitable banking sectors significant hinders business conduct integration; (vi) countries that experienced financial crises integrate their supervisory structure relatively more and (v) greater central bank independence could cause less integration of prudential supervision, but not necessarily of business conduct supervision.
PDF
