We would like to thank Masao Ogaki (the Editor), two anonymous referees, Richard Baldwin, Tam Bayoumi, Thorsten Beck, Mitchell Berlin, Olivier Blanchard, Stijn Claessens, Asli Demirguc-Kunt, Enrica Detragiache, Gianni De Nicolo, Douglas Diamond, Darrell Duffie, Simon Gilchrist, John Griffin, Luigi Guiso, David Gussmann, Robert Hauswald, Patrick Honohan, Simon Johnson, Pete Kyle, Ross Levine, Mark Levonian, Elena Loutskina, Robert Marquez, Chris Mayer, Rebecca McCaughrin, Hamid Mehran, Donald Morgan, Steven Ongena, Marco Pagano, Marcelo Pinheiro, Andrea Pratt, Calvin Schnure, Amit Seru, Hyun Shin, Philip Strahan, Rene Stulz, Todd Vermilyea, Vikrant Vig, Josef Zechner, and seminar participants at American University, Bank of England, Bank for International Settlements, Dutch Central Bank, Fannie Mae, Freddie Mac, Federal Reserve Bank of Chicago, Federal Reserve Bank of Kansas, Federal Reserve Bank of New York, Federal Reserve Bank of Philadelphia, George Washington University, International Monetary Fund, National Bank of Prague, University of Houston, University of Kansas, University of South Carolina, University of Virginia, University of Zurich, the 2008 BIS workshop on “Risk Transfer Mechanisms and Financial Stability,” and the 2008 Unicredit Conference on Finance and Banking at Vienna University for helpful discussions and/or comments on an earlier version of this paper. Mattia Landoni provided outstanding research assistance. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF, its Executive Board, or its Management.
Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market
Version of Record online: 27 MAR 2012
© 2012 The International Monetary Fund (IMF)
Journal of Money, Credit and Banking
Volume 44, Issue 2-3, pages 367–384, March-April 2012
How to Cite
DELL’ARICCIA, G., IGAN, D. and LAEVEN, L. (2012), Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market. Journal of Money, Credit and Banking, 44: 367–384. doi: 10.1111/j.1538-4616.2011.00491.x
- Issue online: 27 MAR 2012
- Version of Record online: 27 MAR 2012
- Received May 5, 2009; and accepted in revised form September 1, 2011
- credit booms;
- credit demand;
- lending standards;
- financial accelerators
This paper links the U.S. subprime mortgage crisis to demand-side factors that contributed to the rapid expansion of the U.S. mortgage market. We show that denial rates were relatively lower in areas that experienced faster credit demand growth and that lenders in these high-growth areas attached less weight to applicants’ loan-to-income ratios. The results are robust to controlling for supply-side factors, including house price appreciation, mortgage securitization, and other economic fundamentals, and to several robustness tests controlling for endogeneity. The results are consistent with the notion that a relaxation of lending standards, triggered by an increased demand for loans, contributed to the boom and the ensuing crisis, together with other supply-side explanations. These findings shed new light on the relationship between credit booms and financial instability.