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Mortgage lending in Korea : an example of a countercyclical macroprudential approach

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  • Chang, Soon-taek

Abstract

Regulatory regimes are actively discussing macroprudential policy. Korea pursued a countercyclical macroprudential approach to prevent the overheating of mortgage lending and to minimize the risk of loan default. The Korean financial supervisory authority made adjustments in response to both the condition of the housing market and trends in mortgage loans. The lessons learned from the Korean experience are applicable to other situations. First, regulations regarding loan-to-value and debt-to-income ratios and other restrictions on mortgage lending can be employed as an important part of a countercyclical framework. Next, measures need to be applied in a timely manner and according to the specific conditions of each country. Finally, authorities should preemptively prepare macroprudential instruments before banks enter a period of rapid mortgage lending to avoid reckless mortgage lending operations and weaken any speculative motive in the housing market.

Suggested Citation

  • Chang, Soon-taek, 2010. "Mortgage lending in Korea : an example of a countercyclical macroprudential approach," Policy Research Working Paper Series 5505, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5505
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    References listed on IDEAS

    as
    1. Taesoo Kang & Guonan Ma, 2009. "Credit card lending distress in Korea in 2003," BIS Papers chapters, in: Bank for International Settlements (ed.), Household debt: implications for monetary policy and financial stability, volume 46, pages 95-106, Bank for International Settlements.
    2. Gerard Caprio, 2011. "Safe and Sound Banking: A Role for Countercyclical Regulatory Requirements?," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 14, Edward Elgar Publishing.
    3. Randall S. Jones & Tadashi Yokoyama, 2008. "Reforming Housing and Regional Policies in Korea," OECD Economics Department Working Papers 613, OECD Publishing.
    4. Mr. Papa M N'Diaye, 2009. "Countercyclical Macro Prudential Policies in a Supporting Role to Monetary Policy," IMF Working Papers 2009/257, International Monetary Fund.
    5. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    6. Eloisa T Glindro & Tientip Subhanij & Jessica Szeto & Haibin Zhu, 2008. "Determinants of house prices in nine Asia-Pacific economies," BIS Working Papers 263, Bank for International Settlements.
    7. Torsten Wezel, 2010. "Dynamic Loan Loss Provisions in Uruguay: Properties, Shock Absorption Capacity and Simulations Using Alternative Formulas," IMF Working Papers 2010/125, International Monetary Fund.
    8. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
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    Cited by:

    1. Otaviano Canuto & Swati R. Ghosh, 2013. "Dealing with the Challenges of Macro Financial Linkages in Emerging Markets," World Bank Publications - Books, The World Bank Group, number 16202, December.
    2. Ms. Deniz O Igan & Mr. Heedon Kang, 2011. "Do Loan-To-Value and Debt-To-Income Limits Work? Evidence From Korea," IMF Working Papers 2011/297, International Monetary Fund.
    3. Mr. G. Terrier & Mr. Rodrigo O. Valdes & Mr. Camilo E Tovar Mora & Mr. Jorge A Chan-Lau & Carlos Fernandez Valdovinos & Ms. Mercedes Garcia-Escribano & Mr. Carlos I. Medeiros & Man-Keung Tang & Miss M, 2011. "Policy Instruments to Lean Against the Wind in Latin America," IMF Working Papers 2011/159, International Monetary Fund.

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    Keywords

    Access to Finance; Debt Markets; Bankruptcy and Resolution of Financial Distress; Banks&Banking Reform; Housing Finance;
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