Loan-to-value policy and the loan portfolios of commercial banks: theory and evidence from China
nature.com
China's loan-to-value caps are a live experiment in macro-prudential policy — revealing how one regulatory lever reshapes every corner of a bank's lending book.
Macro-Prudential RegulationFinancial Stability TheoryCredit Channel TheoryRisk Substitution
Theory Briefing
- China's LTV caps on real estate directly compress mortgage lending, forcing commercial banks to rebalance their entire loan portfolios.
- The study finds macro-prudential policy creates spillover effects, redirecting credit toward corporate or consumer loans in ways regulators may not intend.
- Using both theoretical modelling and Chinese bank data, the research tests whether tighter LTV ratios stabilise financial systems or merely shift risk elsewhere.