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Higher bank capital requirements and mortgage pricing: evidence from the Counter-Cyclical Capital Buffer


Basten, Christoph; Koch, Cathérine (2014). Higher bank capital requirements and mortgage pricing: evidence from the Counter-Cyclical Capital Buffer. Working paper series / Department of Economics 169, University of Zurich.

Abstract

We examine mortgage pricing before and after Switzerland was the first country to activate the Counter-Cyclical Capital Buffer of Basel III. Observing multiple mortgage offers per request, we obtain three core findings. First, capitalconstrained and mortgage-specialized banks raise their rates relatively more. Second, risk-weighting schemes supposed to discriminate against more risky borrowers do not amplify the effect of higher capital requirements. Third, CCB-subjected banks and CCB-exempt insurers raise mortgage rates, but insurers raise rates by on average 8.8 bp more. To conclude, lenders welcome the opportunity to increase mortgage rates, but stricter capital requirements do not discourage banks from risky mortgage lending.

Abstract

We examine mortgage pricing before and after Switzerland was the first country to activate the Counter-Cyclical Capital Buffer of Basel III. Observing multiple mortgage offers per request, we obtain three core findings. First, capitalconstrained and mortgage-specialized banks raise their rates relatively more. Second, risk-weighting schemes supposed to discriminate against more risky borrowers do not amplify the effect of higher capital requirements. Third, CCB-subjected banks and CCB-exempt insurers raise mortgage rates, but insurers raise rates by on average 8.8 bp more. To conclude, lenders welcome the opportunity to increase mortgage rates, but stricter capital requirements do not discourage banks from risky mortgage lending.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:G21, E51
Uncontrolled Keywords:Bank lending, mortgage market
Language:English
Date:July 2014
Deposited On:29 Jul 2014 15:46
Last Modified:15 Aug 2017 13:11
Series Name:Working paper series / Department of Economics
Number of Pages:59
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/static/wp/econwp169.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php

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