Mortgage lending and bank involvement in the insurance business: the effects of cross-selling

This paper examines how banks involved in the insurance business adapt their mortgage lending practices. Our findings rely on a unique dataset, including interest rates on residential mortgages offered by a representative sample of Italian banks in the 2018-21 period, as well as data on bank-insurance relationships. We find that a larger involvement of banks in the insurance sector (measured by the ratio of the fees obtained from the selling of insurance policies to the total amount of fees) is only associated with lower rates on mortgage loans in the case of banks with an insurance subsidiary (and not of those that only have a commercial agreement with insurers). This association is stronger for mortgages granted to borrowers who are more likely to buy savings products (i.e. those with low loan-to-value ratios), as well as after the launch of a new life insurance policy by the insurance subsidiary. This evidence is consistent with the adoption of cross-selling strategies by banks, which tend to offer lower rates on low-revenue products (such as residential mortgages offered in a low interest rate environment) in order to attract new customers who will be inclined to buy high-revenue insurance savings products.