Do Loan-To-Value and Debt-To-Income Limits Work? Evidence From Korea PDF Download

Author: Ms.Deniz Igan
Publisher: International Monetary Fund
ISBN: 1463927835
Category : Business & Economics
Languages : en
Pages : 35

View

Book Description
With another real estate boom-bust bringing woes to the world economy, a quest for a better policy toolkit to deal with these boom-busts has begun. Macroprudential measures could be in such a toolkit. Yet, we know very little about their impact. This paper takes a step to fill this gap by analyzing the Korean experience with these measures. We find that loan-to-value and debt-to-income limits are associated with a decline in house price appreciation and transaction activity. Furthermore, the limits alter expectations, which play a key role in bubble dynamics.

Author: Luis I. Jacome H.
Publisher: International Monetary Fund
ISBN: 1513551442
Category : Business & Economics
Languages : en
Pages : 41

View

Book Description
There is increasing interest in loan-to-value (LTV) and debt-service-to-income (DTI) limits as many countries face a new round of rising house prices. Yet, very little is known on how these regulatory instruments work in practice. This paper contributes to fill this gap by looking closely at their use and effectiveness in six economies—Brazil, Hong Kong SAR, Korea, Malaysia, Poland, and Romania. Insights include: rapid growth in high-LTV loans with long maturities or in the number of borrowers with multiple mortgages can be signs of build up in systemic risk; monitoring nonperforming loans by loan characteristics can help in calibrating changes in the LTV and DTI limits; as leakages are almost inevitable, countries strive to address them at an early stage; and, in most cases, LTVs and DTIs were effective in reducing loan-growth and improving debt-servicing performances of borrowers, but not always in curbing house price growth.

Author: Erlend Nier
Publisher: International Monetary Fund
ISBN: 1513509098
Category : Business & Economics
Languages : en
Pages : 45

View

Book Description
We provide empirical evidence to support the calibration of a limit on household indebtedness levels, in the form of a cap on the debt-service-to-income (DSTI) ratio, in order to reduce the probability of borrower defaults in Romania. The analysis establishes two findings that are new to the literature. First, we show that the relationship between DSTI and probability of default is non-linear, with probability of default responding to increases in DSTI only after a certain threshold. Second, we establish that consumer loan defaults occur at lower levels of DSTI compared to mortgages. Our results support the recent regulation adopted by the National Bank of Romania, limiting the household DSTI at origination to 40 percent for new mortgages and consumer loans. Our counterfactual analysis indicates that had the limit been in place for all the loans in our sample, the probability of default (PD) would have been lower by 23 percent.

Author: Chunsoo Jung
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

View

Book Description
This dissertation aims to examine the effectiveness of the Loan-to-Value (LTV) and Debt-to-Income (DTI) regulations as well as the regulatory arbitrage associated with their implementation. This study is motivated by the fact that our understanding of the regulations is still in its infancy despite the increasing importance of their role in financial stability. To that end, the Korean regulatory experience is employed as it offers a suitable setting from an empirical perspective, thanks to the geographical-differentiated levels of the regulations and the fact of their relatively long history. In this study, we find that the regulations are effective to curb the growth of mortgages; however, their impact could be significantly offset by regulatory arbitrage. Related to this, two possible leakages are newly explored: i) the migration of mortgages into less-regulated areas and ii) complementing the shortage of mortgage loans with non-regulated loans. On the other hand, we reveal that the regulations could negatively impact the credit risk of household loans rather than improve it. This unexpected result might be due to their impact extending even to the non-regulated loans: the regulations could have unintended negative effects on the credit risk of non-regulated loans, which is transmitted through the change in the housing auction market; moreover it seems to dominate the intended positive outcome derived from the regulated loans. This study also confirms that non-bank lending could be a loophole in the presence of regulation gaps between the banking and non-banking sectors. Furthermore, to close the loophole by eliminating the regulation gap between sectors turns out to be effective in tackling the regulatory arbitrage therein. However, it is certainly not the definitive solution considering that a "cat-and-mouse game" between regulators and the regulated can continue to happen each time in a different way.

Author: Nombulelo Gumata
Publisher: Springer
ISBN: 3319435515
Category : Business & Economics
Languages : en
Pages : 612

View

Book Description
This book presents empirical evidence that supports and facilitates a practical, integrated approach to how bank regulatory and selected macro-prudential tools interact with monetary policy to achieve price and financial stability. The empirical results contained in various chapters accompany in-depth historical analysis and counterfactual scenarios that enable proper policy evaluation and the interaction of bank regulatory, macro-prudential and monetary policy tools in South Africa. The presented evidence also identifies financial asset boom and bust episodes and the associated costly output losses. In addition, the authors explore the amplification of credit dynamics by commodity prices and sector credit re-allocation due to capital inflows shocks. The book’s empirical analysis uses a wide range of statistical and econometric approaches on granular data and economic variables to derive policy implications and recommendations. This in-depth quantitative analysis includes determining inverse transmission of global liquidity, as well as the effects of capital flows, lending-rate margins, financial regulatory uncertainty, the National Credit Act, bank capital-adequacy ratios, bank loan loss provisions, loan-to-value ratios and repayment-to-income ratios on the macro-economy.

Author: International Monetary Fund. Western Hemisphere Dept.
Publisher: International Monetary Fund
ISBN: 1484344472
Category : Business & Economics
Languages : en
Pages : 51

View

Book Description
Panama’s extensive trade and financial linkages make it vulnerable to adverse external shocks, and this would have a sizable impact on Panama’s real activity. In the absence of monetary policy, macroprudential policy tools could usefully complement microprudential tools. A macroprudential supervisory body must possess the ability or power to collect and analyze firm-, market-, and global-level data to detect risks before they develop into full-blown crises. This study analyzes Panama’s tax structure, performance, and administration in order to identify priority areas for further strengthening

Author: International Monetary Fund. Research Dept.
Publisher: International Monetary Fund
ISBN: 1475502184
Category : Business & Economics
Languages : en
Pages : 18

View

Book Description
The research summaries in the March 2012 issue of the IMF Research Bulletin are "Foreign Direct Investment and the Crisis: Is This Time Different?" (by Yuko Kinoshita) and "Food Prices and Inflation" (by James P. Walsh). The Q&A covers seven questions on "Unemployment through the Prism of the Great Recession" (by Prakash Loungani). This issue also launches a new feature "Conversations with Visiting Scholars" with an interview with Tom Sargent, winner of the 2011 Nobel Prize in Economic Sciences. Also included in this issue are details on visiting scholars at the IMF, a listing of recently published IMF Working Papers, and information on the next issue of "IMF Economic Review."

Author: International Monetary Fund. European Dept.
Publisher: International Monetary Fund
ISBN: 1498345700
Category : Business & Economics
Languages : en
Pages : 52

View

Book Description
This paper discusses the oil economy, outlook, and risk for Norway. Growth has continued to slow in the mainland economy. At the start of this year, oil prices had dropped by roughly 60 percent from their peak in June 2014 to less than US$40 a barrel. The labor market is feeling the sting of the oil price crash. The krone has weakened substantially along with the decline in oil prices. However, a modest recovery should take root next year. Mainland economy growth should be about 1 percent this year and pick up to close to 13⁄4 percent in 2017.

Author: International Monetary Fund. European Dept.
Publisher: International Monetary Fund
ISBN: 1484343476
Category : Business & Economics
Languages : en
Pages : 77

View

Book Description
This Selected Issues paper analyzes the impact of the adoption of inflation targeting (IT) on exchange rate volatility in Russian Federation. Russia has seen an increase in exchange rate volatility during the past few years compared with the period before the global financial crisis, as the authorities have chosen to allow a higher degree of ruble exchange rate flexibility in preparation for the adoption of IT. The average of the 12-month coefficient of variation of the ruble/dollar exchange rate has also increased from 2.2 percent in December 2005–September 2008 to about 3.7 percent in March 2010–June 2013.

Author: Mr.Eugenio M Cerutti
Publisher: International Monetary Fund
ISBN: 1475535457
Category : Business & Economics
Languages : en
Pages : 23

View

Book Description
This paper documents the features of a new database that focuses on changes in the intensity in the usage of several widely used prudential tools, taking into account both macro-prudential and micro-prudential objectives. The database coverage is broad, spanning 64 countries, and with quarterly data for the period 2000Q1 through 2014Q4. The five types of prudential instruments in the database are: capital buffers, interbank exposure limits, concentration limits, loan to value (LTV) ratio limits, and reserve requirements. A total of nine prudential tools are constructed since some useful further decompositions are presented, with capital buffers divided into four subindices: general capital requirements, real state credit specific capital buffers, consumer credit specific capital buffers, and other specific capital buffers; and with reserve requirements divided into two sub-indices: domestic currency capital requirements and foreign currency capital requirements. While general capital requirements have the most changes from the cross-country perspective, LTV ratio limits and reserve requirements have the largest number of tightening and loosening episodes. We also analyze the instruments’ usage in relation to the evolution of key variables such as credit, policy rates, and house prices, finding substantial differences in the patterns of loosening or tightening of instruments in relation to business and financial cycles.