Lending on Hold: Regulatory Uncertainty and Bank Lending Standards

Abstract

The 2011--2013 rule-making process for the regulation of qualified mortgages was correlated with a reduction in mortgage lending. In this article, we document this correlation at the bank level. Using a novel measure of banks' perception of regulatory uncertainty, we offer suggestive evidence that banks that perceived higher regulatory uncertainty (or that were more adverse to it) reduced lending more severely. Other channels that might explain banks' lending behavior--investment/securitization, putbacks by government sponsored enterprises, and general economic uncertainty--are also considered.

Keywords: Policy uncertainty; Credit cycles; Qualified mortgages

JEL Classification: G21, G28