My most recent work utilises the rich microdata available at the Central Bank of Ireland to study mortgage borrowers' responses to macroprudential and fiscal policy changes; the role that non-bank lenders play in mitigating credit supply shocks in business lending; and the transmission of monetary policy through non-bank balance sheets in Ireland
Monetary policy and non-bank lending. Joint with Oana Peia (UCD), Glenn Schepens and Peter Hoffmann (both ECB). Presented at the ECB's MPC task force on banking analysis for monetary policy.
We study the transmission of monetary policy through nonbanks using credit registry data from Ireland that uniquely covers the universe of banks and nonbank lenders. We find that nonbanks reduce their credit supply more following monetary policy tightening. The higher sensitivity of nonbank lending to changes in interest rates is explained by their balance sheet as well as ownership structure. Specifically, nonbanks with lower capital ratios and more reliant on short-term financing decrease their lending significantly more. Similarly, ``captive" nonbanks, which are the asset financing arms of large corporations, are also less sensitive to monetary policy changes.
Do non-bank lenders mitigate credit supply shocks? Evidence from a major bank exit. Joint with Niall McGeever (Central Bank of Ireland) and Oana Peia (UCD). Link to working paper version
We study the transmission of credit supply shocks to firms by exploiting the unexpected exit of the third-largest lender in the Irish business lending market in 2020 and a unique matched firm-lender dataset that covers both banks and non-bank financial institutions. We find that borrowers of the exiting bank receive less credit along both the extensive and intensive margin in the period after the announcement, highlighting that credit supply is not perfectly substitutable across lenders. However, we show that this negative credit supply shock is partly mitigated by non-bank lenders. Borrowers of the exiting bank are more likely to borrow from non-banks following the shock, with the effects driven by business loan facilities, and stronger among riskier firms.
Leverage and liquidity responses to mortgage downpayment subsidies. Joint with Anuj Pratap Singh (Central Bank of Ireland). Link to working paper version
Policies that limit mortgage leverage face an inherent trade-off between the benefits of reduced indebtedness and the erosion of liquidity buffers through larger downpayment requirements. Governmental downpayment subsidies, while not designed to address this trade-off, can potentially alleviate it, particularly where borrowers are liquidity-constrained. Exploiting an unexpected increase in government subsidies towards downpayments in Ireland, we estimate that borrowers reduce their out-of-pocket downpayments substantially, improving their liquidity position. They also borrow less, at lower leverage ratios, suggesting that, contrary to findings from other jurisdictions, public subsidies in the mortgage market do not necessarily pass through to increased house prices in all circumstances.
The effects of a macroprudential loosening: The importance of borrowers’ choices. Joint with Elena Durante (ECB). Link to working paper version
In a quasi-experimental setting, we explore a rare episode of credit loosening under the macroprudential regime for mortgage borrowers. As a result of an increase in the LTV limit for a cohort of First Time Buyers (FTBs) in Ireland in 2017, we find that LTVs rose by 1.2 percentage points. We also find that the ‘classic’ economic intuition predicting house price amplification after a credit loosening did not hold in the Irish case. Rather, treated borrowers post lower deposits, displaying a preference to rebalance their portfolio towards greater cash retention rather than more expensive properties.