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

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  • Lou, Weifang
  • Yin, Xiangkang

Abstract

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.

Suggested Citation

  • Lou, Weifang & Yin, Xiangkang, 2014. "The impact of the global financial crisis on mortgage pricing and credit supply," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 336-363.
  • Handle: RePEc:eee:intfin:v:29:y:2014:i:c:p:336-363 DOI: 10.1016/j.intfin.2014.01.001
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    References listed on IDEAS

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    Cited by:

    1. Narendar Rao & K. Reddy, 2015. "The impact of the global financial crisis on cross-border mergers and acquisitions: a continental and industry analysis," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 309-341, December.
    2. Samargandi, Nahla & Kutan, Ali M., 2016. "Private credit spillovers and economic growth: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 56-84.
    3. Ryan-Collins, Josh & Werner, Richard A. & Castle, Jennifer, 2016. "A half-century diversion of monetary policy? An empirical horse-race to identify the UK variable most likely to deliver the desired nominal GDP growth rate," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 158-176.

    More about this item

    Keywords

    Banking; Credit; Global financial crisis; Liquidity; Mortgage pricing;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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