IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The impact of the global financial crisis on mortgage pricing and credit supply

  • Lou, Weifang
  • Yin, Xiangkang

This paper studies the pricing and sales of home mortgages in Australia, focusing on the global financial crisis (GFC). It shows that the crisis significantly changed banks’ pricing behavior and its impact varied across banks, depending on their asset sizes, deposit sources and liquidity profiles. Big banks led in price setting and responded promptly to both upward and downward adjustments of the cash target rate before and during the GFC. Albeit cutting their prices sluggishly after the GFC, they still enjoy greater market power and are expanding faster. Banks with solid deposit support became slower in responding to policy shocks during the GFC and sold more than their counterparts. Interestingly, banks in a better liquidity position tended to be more conservative in pricing during the GFC, i.e. reacting quickly when the cash rate moved up but slowly if it fell, but became more aggressive thereafter.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S104244311400002X
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 29 (2014)
Issue (Month): C ()
Pages: 336-363

as
in new window

Handle: RePEc:eee:intfin:v:29:y:2014:i:c:p:336-363
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Allen N. Berger & Christa H. S. Bouwman, 2009. "Bank Liquidity Creation," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3779-3837, September.
  2. Jo�o A. C. Santos, 2011. "Bank Corporate Loan Pricing Following the Subprime Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1916-1943.
  3. Gambacorta, Leonardo, 2008. "How do banks set interest rates?," European Economic Review, Elsevier, vol. 52(5), pages 792-819, July.
  4. Agoraki, Maria-Eleni K. & Delis, Manthos D. & Pasiouras, Fotios, 2011. "Regulations, competition and bank risk-taking in transition countries," Journal of Financial Stability, Elsevier, vol. 7(1), pages 38-48, January.
  5. Battiston, Stefano & Gatti, Domenico Delli & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2012. "Default cascades: When does risk diversification increase stability?," Journal of Financial Stability, Elsevier, vol. 8(3), pages 138-149.
  6. John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
  7. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
  8. Frank Milne, 2012. "Economic Crises: The Impact on Australia and Canada," Working Papers 1296, Queen's University, Department of Economics.
  9. Patrick Behr & Reinhard Schmidt & Ru Xie, 2010. "Market Structure, Capital Regulation and Bank Risk Taking," Journal of Financial Services Research, Springer, vol. 37(2), pages 131-158, June.
  10. Gary B. Gorton & Andrew Metrick, 2009. "Securitized Banking and the Run on Repo," NBER Working Papers 15223, National Bureau of Economic Research, Inc.
  11. repec:dgr:kubcen:2012085 is not listed on IDEAS
  12. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May.
  13. Brinkmann, Emile J & Horvitz, Paul M, 1995. "Risk-Based Capital Standards and the Credit Crunch," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 848-63, August.
  14. T. Beck & O. De Jonghe & G. Schepens, 2011. "Bank competition and stability: cross-country heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/732, Ghent University, Faculty of Economics and Business Administration.
  15. Allen Berger & Leora Klapper & Rima Turk-Ariss, 2009. "Bank Competition and Financial Stability," Journal of Financial Services Research, Springer, vol. 35(2), pages 99-118, April.
  16. Turk Ariss, Rima, 2010. "On the implications of market power in banking: Evidence from developing countries," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 765-775, April.
  17. Jason Allen & Darcey McVanel, 2009. "Price Movements in the Canadian Residential Mortgage Market," Working Papers 09-13, Bank of Canada.
  18. G. C. Lim & Sarantis Tsiaplias & Chew Lian Chua, 2013. "Bank and Official Interest Rates: How Do They Interact over Time?," The Economic Record, The Economic Society of Australia, vol. 89(285), pages 160-174, 06.
  19. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Negotiation in Differentiated Products Markets: Evidence from the Canadian Mortgage Market," Working Papers 12-30, Bank of Canada.
  20. Manju Puri & Jörg Rocholl & Sascha Steffen, 2011. "Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects," NBER Working Papers 16967, National Bureau of Economic Research, Inc.
  21. Adam B. Ashcraft, 2001. "New evidence on the lending channel," Staff Reports 136, Federal Reserve Bank of New York.
  22. Rocco Huang & Lev Ratnovski, 2009. "Why Are Canadian Banks More Resilient?," IMF Working Papers 09/152, International Monetary Fund.
  23. repec:mes:postke:v:35:y:2012:i:2:p:277-300 is not listed on IDEAS
  24. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
  25. Olivier De Jonghe, 2009. "Back to the basics in banking ? A micro-analysis of banking system stability," Working Paper Research 167, National Bank of Belgium.
  26. Moshirian, Fariborz, 2011. "The global financial crisis and the evolution of markets, institutions and regulation," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 502-511, March.
  27. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
  28. Sander Harald & Kleimeier Stefanie, 2003. "Convergence in Eurozone retail banking? What interest rate pass-through tells us about monetary policy transmission, competition and integration," Research Memorandum 051, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  29. Ricardo J. Caballero & Arvind Krishnamurthy, 2008. "Collective Risk Management in a Flight to Quality Episode," Journal of Finance, American Finance Association, vol. 63(5), pages 2195-2230, October.
  30. Kishan, Ruby P. & Opiela, Timothy P., 2006. "Bank capital and loan asymmetry in the transmission of monetary policy," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 259-285, January.
  31. Kim, Suk-Joong & Nguyen, Do Quoc Tho, 2008. "The reaction of the Australian financial markets to the interest rate news from the Reserve Bank of Australia and the U.S. Fed," Research in International Business and Finance, Elsevier, vol. 22(3), pages 378-395, September.
  32. Nguyen, My & Skully, Michael & Perera, Shrimal, 2012. "Market power, revenue diversification and bank stability: Evidence from selected South Asian countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 897-912.
  33. Lim, G C, 2001. "Bank Interest Rate Adjustments: Are They Asymmetric?," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 135-47, June.
  34. Berger, Allen N, et al, 2004. "Bank Concentration and Competition: An Evolution in the Making," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 433-51, June.
  35. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
  36. Kleimeier, Stefanie & Sander, Harald, 2006. "Expected versus unexpected monetary policy impulses and interest rate pass-through in euro-zone retail banking markets," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1839-1870, July.
  37. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-80, June.
  38. Kevin Davis, 2011. "The Australian Financial System in the 2000s: Dodging the Bullet," RBA Annual Conference Volume, in: Hugo Gerard & Jonathan Kearns (ed.), The Australian Economy in the 2000s Reserve Bank of Australia.
  39. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  40. David E Allen & R.R Boffey & R. J. Powell, 2011. "Peas in a pod: Canadian and Australian banks before and during a Global Financial Crisis," Working papers 2011-01, Edith Cowan University, School of Business.
  41. Allen N. Berger & Asli Demirgüç-Kunt & Ross Levine & Joseph G. Haubrich, 2004. "Introduction: Bank concentration and competition: an evolution in the making," Proceedings, Federal Reserve Bank of Cleveland, pages 433-451.
  42. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:29:y:2014:i:c:p:336-363. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.