The Credit Reallocation Effect of Macroprudential Regulation - Evidence from Ireland

We analyze the effect of macroprudential policies aimed at limiting bank build-up of risk on bank credit supply. Combining supervisory loan- and household-level data, we examine the transmission of the February 2015... [ view full abstract ]

We analyze the effect of macroprudential policies aimed at limiting bank build-up of risk on bank credit supply. Combining supervisory loan- and household-level data, we examine the transmission of the February 2015 introduction of loan-to-income and loan-to-value limits on the issuance of residential mortgages in Ireland. While leading to a bank credit supply reallocation across counties and households, we find that the banks' average loan-to-value ratios keep increasing even after the introduction of the new limits. Our results suggest that macroprudential policies, while causing a redistribution of banks' portfolios, do not affect overall bank risk exposure.