Impacts of household loan regulation on financial stability: evidence from Korea. (May 2017)

• Record Type: Journal Article
• Authors: Shin, Dong Jin; Kim, Brian H.S.
• Is Part Of: Asian-Pacific economic literature. Volume 31:Number 1(2017:May)
• Page Start: 53
• Page End: 65
• Publication Date: 2017-05
• Subjects: Asia -- Economic conditions -- Periodicals; Pacific Area -- Economic conditions -- Periodicals; Asia -- Economic policy -- Periodicals; Pacific Area -- Economic policy -- Periodicals; 330
• DOI: 10.1111/apel.12177
• Languages: English
• ISSNs: 0818-9935

Abstract

Abstract : The paper examines whether banking regulations and monetary policy contributed to controlling the fragility of household debt in Korea. The results show that housing loan regulations such as debt to income regulation contributed to a lower household debt delinquency ratio. Lowering the target interest rate provided additional stabilisation of the delinquency ratio. It is recommended that the government adopt an appropriate mix of regulation and monetary policy to control household financial fragility. The financial supervisory services need to be involved in managing debt to income regulation and minimising financial instability and financial market distortions. Further, the monetary authority has to adopt a more effective position in controlling the real lending interest rate and the delinquency ratio of household loans. Such a policy mix will improve effectiveness in controlling financial fragility, especially at a time of financial crisis.