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Illusive compliance and elusive risk-shifting after macroprudential tightening: Evidence from EU banking

Author

Listed:
  • Koetter, Michael
  • Noth, Felix
  • Wöbbeking, Carl Fabian

Abstract

We study whether and how EU banks comply with tighter macroprudential policy (MPP). Observing contractual details for more than one million securitized loans, we document an elusive risk-shifting response by EU banks in reaction to tighter loan-to-value (LTV) restrictions between 2009 and 2022. Our staggered difference-in-differences reveals that banks respond to these MPP measures at the portfolio level by issuing new loans after LTV shocks that are smaller, have shorter maturities, and show a higher collateral valuation while holding constant interest rates. Instead of contracting aggregate lending as intended by tighter MPP, banks increase the number and total volume of newly issued loans. Importantly, new loans finance especially properties in less liquid markets identified by a new European Real Estate Index (EREI), which we interpret as a novel, elusive form of risk-shifting.

Suggested Citation

  • Koetter, Michael & Noth, Felix & Wöbbeking, Carl Fabian, 2025. "Illusive compliance and elusive risk-shifting after macroprudential tightening: Evidence from EU banking," IWH Discussion Papers 4/2025, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:311202
    DOI: 10.18717/dp8vbg-3v09
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    More about this item

    Keywords

    European Real Estate Index; LTV; macroprudential policy; risk shifting;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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