Policy evaluation reveals higher mortgage capital requirements curb overall leverage but raise short-term household delinquency, highlighting trade-offs in macroprudential risk regulation.
We study a macroprudential regulation in the emerging market of Chile that raised loan-loss provisions for residential mortgages with loan-to-value (LTV) ratios above 80%. The policy reduced high-LTV borrowing and overall leverage but unintentionally affected households likely to borrow above 80% LTV based on preregulation characteristics. These borrowers liquidated term deposits to meet higher down payments, lowering liquidity and raising short-term delinquency, especially near the threshold. The results uncover a regulatory trade-off: systemic risk is curbed, but financially constrained households face short-term vulnerability. (JEL G21, G28, D40)
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Berwart et al. (2026) studied this question.
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