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Effect of household loan regulation on financial stability : Empirical evidence from Korea

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  • Effect of household loan regulation on financial stability
  • Baek, Ehung Gi; Shin, Dong Jin; Kim, Brian H.S.
  • Association of Korean Economic Studies


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Title Effect of household loan regulation on financial stability
Similar Titles
Sub Title

Empirical evidence from Korea

Material Type Report
Author(English)

Baek, Ehung Gi; Shin, Dong Jin; Kim, Brian H.S.

Publisher

[Seoul, South Korea] : Association of Korean Economic Studies

Date 2013
Pages 27
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Conditions
Holding Association of Korean Economic Studies
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Abstract

This paper uses Korean data to analyze whether regulations and monetary policy have contributed to controlling the financial fragility of household debt. The analysis shows that loan to value (LTV) and debt to income (DTI) regulations and the policy of keeping interest rates low lowered household delinquency ratios. We suggest that the government should lower household financial fragility and thus enhance the macroeconomic environment by appropriately mixing monetary policy from the Bank of Korea and regulation policy from the Financial Supervisory Service. Both authorities are independent institutions and have their own policy instruments to control the financial fragility of household debt. We recommend that the government establish a financial stability board to determine the optimal policy mix that will minimize financial fragility.