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Lending Pro-Cyclicality and Macro-Prudential Policy: Evidence from Japanese LTV Ratios

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  • Ono, Arito
  • Uchida, Hirofumi
  • Udell, Gregory F.
  • Uesugi, Iichiro

Abstract

Using a unique micro dataset compiled from the real estate registry in Japan, we examine more than 400,000 loan-to-value (LTV) ratios for business loans to draw implications for the efficacy of caps on LTV ratios as a macro-prudential policy measure. We find that the LTV ratio exhibits counter-cyclicality through the business cycle. We also find that borrowers obtaining high-LTV loans performed no worse ex-post than those with lower LTV loans. Our findings imply that a fixed cap on LTV ratios might not only be ineffective in curbing loan volume in boom periods but also inhibit well-performing firms from borrowing.

Suggested Citation

  • Ono, Arito & Uchida, Hirofumi & Udell, Gregory F. & Uesugi, Iichiro, 2016. "Lending Pro-Cyclicality and Macro-Prudential Policy: Evidence from Japanese LTV Ratios," HIT-REFINED Working Paper Series 41, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:remfce:41
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    1. Giorgia Piacentino & Anjan Thakor & Jason Donaldson, 2015. "Bank Capital, Bank Credit and Unemployment," 2015 Meeting Papers 1403, Society for Economic Dynamics.

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    More about this item

    Keywords

    loan-to-value (LTV) ratios; pro-cyclicality; macro-prudential policy; bubble;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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