A regulatory change introduced in Italy in 2006 repealed the limit on banks' maturity transformation (Basel 3 later introduced requirements on liquidity risk). This change incentivized banks to increase their supply of long-term credit. This work leverages this regulatory change to study, for the two years following, the effects of a regulatory loosening on mortgage supply and on housing prices in Italian municipalities.
The banks constrained by the regulation increased mortgage supply in response to the change; this did not occur for the other banks. The regulatory change incentivized the supply of longer-term mortgages, making them affordable for a larger customer base. An acceleration in house prices corresponded to the higher credit supply.
