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How does bank capital affect the supply of mortgages? Evidence from a randomized experiment

Author

Listed:
  • Valentina Michelangeli
  • Enrico Sette
Abstract
We study the effect of bank capital on the supply of mortgages. We fully control for endogenous matching between borrowers, loan contracts, and banks by submitting randomized mortgage applications to the major online mortgage broker in Italy. We find that higher bank capital is associated with a higher likelihood of application acceptance and lower offered interest rates; banks with lower capital reject applications by riskier borrowers and offer lower rates to safer ones. Finally, nonparametric estimates of the probability of acceptance and of the offered rate show that the effect of bank capital is stronger when capital is low.

Suggested Citation

  • Valentina Michelangeli & Enrico Sette, 2016. "How does bank capital affect the supply of mortgages? Evidence from a randomized experiment," BIS Working Papers 557, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:557
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mortgages; banks; household finance; randomized experiment;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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