LUIS I JÁCOME AND SROBONA MITRA* LUIS I. Jd2ace73e-caec-41aa-87fd... · Systemic Risk Indicators Probability of crisis Credit and House Prices together form powerful signals Median

Through the Magnifying GlassThrough the Magnifying GlassThrough the Magnifying GlassThrough the Magnifying Glass

LUIS I JLUIS I JÁÁCOME COME AND SROBONA AND SROBONA MITRAMITRA**

October 9-10, 2014

LUIS I . JLUIS I . JÁÁCOME COME AND SROBONA AND SROBONA MITRAMITRA*The views expressed are those of the authors and should not necessarily be attributed either to the IMF, its Executive Board, its Management, or to the other central banks cited in the presentation.

OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”Counteract This?” 1

Global Macroprudential Policy Instruments Survey, end-2013:• LTVs: 48% AEs, 55% EMs; DTIs: Less use

Limits on Loan-to-Value ratios Caps on Debt-Service-to-Income ratios

• Not always for macroprudential purposes

(In percent)p

(Number of countries)

80

100

120

6

7

8

20

40

60

3

4

5

0

Cana

daCh

ileCh

ina

Colo

mbi

aCr

oatia

Den

mar

kFi

nlan

dH

ong

Kong

SAR

Hun

gary

Icel

and

Indi

aIn

done

siaIre

land

Israe

lIta

l yKo

rea

Latv

iaLe

bano

nLu

xem

bour

gM

alay

siaN

ethe

rland

sN

orw

a yPh

ilipp

ines

Port

u gal

Rom

ania

Serb

iaSi

n gap

ore

Swed

enTa

iwan

PoC

Thai

land

Turk

e y

0

1

2

30-40 % 40-45 % 45-50 %

Source: IMF Staff Guidance Note on Macroprudential Policy: Detailed Guidance on Instruments, Chapter on “Household Sector Tools” (Heedon Kang).

OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?” 2

TriggersTriggers LevelsLevels InstitutionsInstitutions

EnforcementEnforcement

Effectiveness??Effectiveness??

OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”3

1.Triggers1.TriggersBrazilBrazil gggg

2 Levels2 Levels

Hong Kong SARHong Kong SARKoreaKoreaMalaysiaMalaysiaPoland Poland 2.Levels2.Levels

4. Institutions4. Institutions

Poland Poland RomaniaRomania

Case studies with detailsCase studies with detailsCoordinated by the Fund Coordinated by the Fund

3.Enforcement3.Enforcement

5. Effectiveness5. EffectivenessSummary paper with key Summary paper with key lessons, remaining gapslessons, remaining gaps


TriggersTriggers

OeNB Workshop “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?” 5

Systemic Risk IndicatorsProbability of crisisProbability of crisis

y Credit and House Prices

together form powerful signals signals

Median Growth (pre-GFC) 2003Q1-2007Q4) 3Q 7Q4 Mortgage loan: 12-15% Credit/GDP (pp):

(A ) ( th il ) 4 (Avg), 5 (75th pctile) Real house price (%)

7 (Avg), 9 (75th pctile) Source: Arregui, Benes, Krznar, Mitra & Santos (“Evaluating Net Benefits of Macroprudential Policy: A

OeNB Workshop “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”

7 ( g) 9 (75 p )( Evaluating Net Benefits of Macroprudential Policy: A Cookbook,” IMF WP, 2013)

6

Property price boomProperty price boom--bust cyclebust cycle Rapid growth: Property prices (especially with Credit)p g p y p ( p y ) Overvaluation

BanksBanks Concentration risk Nonperforming loan vintages—micro data

Household disposable income Fx exposure Loan tenors LTV

High LTV + Long Loan Maturities Alert! Lending Stds declining g g g g HouseholdsHouseholds——Debt, Leverage Debt, Leverage NonbanksNonbanks

Regulation and supervision less stringent Leakage of activities from banksg Very active in the property market

Speculative ActivitiesSpeculative Activities Confirmer transactions, rate of subscription competition Mortgage loan growth + Number of Multiple Mortgage Loans Alert!


llLevelsLevels


60%

Brazil: Auto loans(Percentage growth y-o-y)

16%

Hong Kong: Mortgage loans(Percentage growth y-o-y)

16%

Korea: Mortgage loans(Percentage growth y-o-y)

20%

30%

40%

50%

6%

8%

10%

12%

14%

6%

8%

10%

12%

14%

-10%

0%

10%

20%

2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1-2%

0%

2%

4%

6%

2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.10%

2%

4%

6%

2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1

14%

16%

Malaysia: Mortgage loans(Percentage growth y-o-y)

60%

70%

80%

Poland: Mortgage loans(Percentage growth y-o-y)

80%

100%

Romania: Mortgage loans(Percentage growth y-o-y)

6%

8%

10%

12%

20%

30%

40%

50%

20%

40%

60%

OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”

4%

6%

2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.10%

10%

2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.10%

2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.19

Source: Central Banks, IMF staff calculations.

No magic numbersNo magic numbersLTV 6 8 % DTI LTV: 60-85%, DTI: 30-50

Varied by loan types: lower for fx, overseas income, long-maturity, commercial property,

speculation prone areap p ChangesChanges

Mostly discretionary Frequent changes in some, response to leakagesq g , p g

Numerator for LTVNumerator for LTV Mostly mortgage loan value Some added other debt

Numerator for DTINumerator for DTI Debt service on mortgage loans Debt service on all loans


EnforcementEnforcement


Mostly immediate applicationMostly immediate application Narrow gap between announcement and application

With other prudential and macro measuresWith other prudential and macro measures Risk weights reserve requirements Risk weights, reserve requirements Fiscal and monetary policy

Protected vulnerable groupsProtected vulnerable groups First time home buyers Government schemes

CommunicationCommunication CommunicationCommunication Often not discussed with stakeholders Communication strategy key in explaining the

l tiregulationOeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?” 12

InstitutionsInstitutions


Twin peaks Multi-agency

Brazil Hong Malaysia Romania Korea PolandKong

Hardpowers

● ● ●

Semi-hard/ intermediate powers

● */ ● */

fSoft powers

●

*/ In Brazil, the National Monetary Council has final decision, although it often delegates h C l B k f B il h i K h fi l d i i hi h l l to the Central Bank of Brazil, whereas in Korea the final decision rests on a high level

committee chaired by the President of the Republic OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?” 14

No oneNo one--size fits all, but basic principles size fits all, but basic principles (Nier, Osinski, Jácome, Madrid, IMF SDN 2011)(Nier, Osinski, Jácome, Madrid, IMF SDN 2011)

l l d ll l d l Institutional arrangements were already in placeInstitutional arrangements were already in place Central Banks monitor systemic risksCentral Banks monitor systemic risks

Di i i i k d i i li lDi i i i k d i i li l Diverse institutions take decisions on policy toolsDiverse institutions take decisions on policy tools Usually not coordinated with monetary policyUsually not coordinated with monetary policy


Leakages inevitableLeakages inevitablegg But need to prepare for it

Diverse source of leakagesDiverse source of leakages Non-regulated entities Modifying loans to meet standards Crossborder mortgage lending Crossborder mortgage lending Foreign bank branches

Various policies to deal with leakagesVarious policies to deal with leakages Less leakage when policies were targetedLess leakage when policies were targeted


EffectivenessEffectiveness


Source: Arregui, Benes, Krznar, Mitra and Santos (IMF WP, 2013): “Evaluating Net Benefits of Macroprudential Policy: A Cookbook”


Rich data setsRich data sets Credit: Mortgage, Consumer NPLs: Loan-by-loan vintage, over time

Di d l P l GMM GVAR E Diffi DiffDi d l P l GMM GVAR E Diffi Diff Diverse models: Panel GMM, GVAR, Events, DiffinDiffDiverse models: Panel GMM, GVAR, Events, DiffinDiff Most effective on credit growth and debt servicingMost effective on credit growth and debt servicing

ROM: Consumer Credit not HP ROM: Consumer Credit, not HP KOR: M Credit & HP; LTV more effective than DTI HKO: Household leverage, not HPg , MYS: Speculative borrowers, not HP POL: Low income-buffer

BRZ C b d hi h LTV l BRZ: Curbed high-LTV loansOeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?”OeNB Workshop: “Are House Prices Endangering Financial Stability? If so, How Can We Counteract This?” 19


1. Systemic risk: Creative use of both macro and micro data2. Alert: High LTV loans, long maturities, speculation3. Most changes in LTV/DTI discretionary4. NPLs by LTV-specific loan vintage useful for calibration5. Complementary prudential and fiscal measures6 A d i i di t l i di i6. Announce and impose immediately, no prior discussion7. Diverse institutions involved in tools, CBs monitor risks8 Expect leakages prepare in advance8. Expect leakages, prepare in advance9. Effective on credit growth and loan servicing10. Targeted measures at mortgages most at risk work betterg g g


Calibration: How much to tighten, when to loosen; Calibration: How much to tighten, when to loosen; h h ld ?h h ld ?thresholds?thresholds?

Benefit of being rulesBenefit of being rules--based?based?Benefit of being rulesBenefit of being rules based?based?

Transmission channels and use of other policiesTransmission channels and use of other policies

What to do in the presence of bankWhat to do in the presence of bank--based capital flows?based capital flows?

Social policy versus high economic costs of government Social policy versus high economic costs of government programsprograms


OeNB Workshop: “Are House Prices Endangering Financial Stability? If So, How Can We Counteract This?”OeNB Workshop: “Are House Prices Endangering Financial Stability? If So, How Can We Counteract This?” 23

LUIS I JÁCOME AND SROBONA MITRA* LUIS I. Jd2ace73e-caec-41aa-87fd... · Systemic Risk Indicators Probability of crisis Credit and House Prices together form powerful signals Median

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