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Loan-to-Value Caps, Bank Lending, and Spillover to General-Purpose Loans

Author

Listed:
  • Selva Bahar Baziki
  • Tanju Capacioglu

Abstract

This paper studies the effect of the introduction of and a subsequent easing in residential credit loan-to-value (LTV) ratio caps on bank lending and borrowers' loan usage with a unique and comprehensive bank-linked individual credit data set in a large emerging economy. We first show that following the introduction of an LTV cap, banks that were previously lending at rates above the limit have reduced residential lending, as targeted by the policy. We find that banks change their balance sheet composition as a response, replacing the reduction in residential lending with higher commercial loans and general-purpose loans issued to new residential borrowers.

Suggested Citation

  • Selva Bahar Baziki & Tanju Capacioglu, 2021. "Loan-to-Value Caps, Bank Lending, and Spillover to General-Purpose Loans," Working Papers 2123, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2123
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2021/21-23
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    More about this item

    Keywords

    Loan to value ratio; Credit risk; Housing loans; General-purpose loans; Credit spillover;
    All these keywords.

    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
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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