Various studies confirm that measures that restrict lending are generally effective in curbing house prices and credit growth.4 The ECB has recently analysed the impact of capital buffer releases on bank credit supply in the European Banking Union during the pandemic, and found that capital relief measures had positive effects on lending, especially for banks that were close to the combined buffer requirement.5 This finding supports the idea that releasing regulatory capital buffers during periods of stress can mitigate procyclical pressures in the banking system.
Capital-based measures make the banking system more robust by reducing banks’ leverage and probability of default; BBMs do the same indirectly, by strengthening borrowers’ resilience.6 Income-based tools (the debt-service-to-income ratio, or DSTI, and the debt-to-income ratio, or DTI) mainly reduce the probability of default, while collateral-based tools (like the loan-to-value ratio, or LTV) act primarily through reducing loss given default.