Loan Pricing Following a Macro Prudential Within-Sector Capital Measure
AbstractThis paper investigates the consequences on loan spreads of a within-sector macro prudential capital measure in Brazil. Due to concerns related to a possibly too fast and unbalanced expansion of the auto-loan sector, regulatory capital was raised for auto-loans with specific long maturities and high LTVs. Our results show that Brazilian banks, after the regulatory measure, increased spreads charged on the same borrower for similar auto loans whose regulatory risk weights have increased. In comparison to the set of untargeted loans, the increase was at least of 13%. On the other hand, evidence on increase of spreads also for loans whose risk weights have not been altered is not robust. Finally, this paper shows that the later withdrawal of the regulatory capital measure was associated, similarly, to lower spreads charged on auto loans whose risk weights have decreased. Nevertheless, when measured relatively, this reduction in spreads was smaller than the original increase.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 323.
Date of creation: Aug 2013
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Web page: http://www.bcb.gov.br/?english
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-16 (All new papers)
- NEP-BAN-2013-08-16 (Banking)
- NEP-CBA-2013-08-16 (Central Banking)
- NEP-LAM-2013-08-16 (Central & South America)
- NEP-SPO-2013-08-16 (Sports & Economics)
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