Bank Regulatory Capital Arbitrage: Evidence from Housing Overappraisals

• 成果类型: Article; Early Access
• 署名作者: Mayordomo, Sergio; Rachedi, Omar; Morenoa, Maria Rodriguez
• 署名单位: Banco de Espana; Universitat Ramon Llull; Escuela Superior de Administracion y Direccion de Empresas (ESADE)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4805
• 发表日期: 2023
• 关键词: risk-weighted assets; mortgages; collateral; Credit supply; corporate; ending

摘要

The overstatement of asset collateral values reduces bank capital requirements. We identify this novel form of regulatory arbitrage by studying housing overappraisals, the difference between housing collateral values computed by appraisers and actual transaction prices. We leverage granular loan-level data from Spain and a kink in the scheme of residential mortgage risk weights to show that tighter regulatory requirements cause larger overappraisals. This bias depends on the relationship between appraisers and banks; appraisers inflate mortgage collateral values only for their major customer banks. On average, overappraisals lower risk-weighted mortgages by 9%. Mortgage overappraisals allow banks to free up regulatory capital to support additional risk-taking in the corporate loan market.