Mortgage lending in Korea : an example of a countercyclical macroprudential approach
AbstractRegulatory regimes are actively discussing macroprudential policy. Korea pursued a countercyclical macroprudential approach to prevent the overheating of mortgage lending and to minimize the risk of loan default. The Korean financial supervisory authority made adjustments in response to both the condition of the housing market and trends in mortgage loans. The lessons learned from the Korean experience are applicable to other situations. First, regulations regarding loan-to-value and debt-to-income ratios and other restrictions on mortgage lending can be employed as an important part of a countercyclical framework. Next, measures need to be applied in a timely manner and according to the specific conditions of each country. Finally, authorities should preemptively prepare macroprudential instruments before banks enter a period of rapid mortgage lending to avoid reckless mortgage lending operations and weaken any speculative motive in the housing market.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 5505.
Date of creation: 01 Dec 2010
Date of revision:
Access to Finance; Debt Markets; Bankruptcy and Resolution of Financial Distress; Banks&Banking Reform; Housing Finance;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-16 (All new papers)
- NEP-BAN-2011-01-16 (Banking)
- NEP-REG-2011-01-16 (Regulation)
- NEP-RMG-2011-01-16 (Risk Management)
- NEP-URE-2011-01-16 (Urban & Real Estate Economics)
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- Taesoo Kang & Guonan Ma, 2009. "Credit card lending distress in Korea in 2003," BIS Papers chapters, in: Bank for International Settlements (ed.), Household debt: implications for monetary policy and financial stability, volume 46, pages 95-106 Bank for International Settlements.
- Otaviano Canuto & Swati R. Ghosh, 2013. "Dealing with the Challenges of Macro Financial Linkages in Emerging Markets," World Bank Publications, The World Bank, number 16202, October.
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