Did the 2012 Spanish law reform to protect mortgage debtors modify banks’ lending behavior?

Abstract Royal Decree-Law 6/2012 introduced a new Code of Good Practice for Spanish banks and financial institutions with the aim of protecting low-income debtors. In this study, we examine the impact of this legal reform on the lending behavior of banks. We analyze quarterly data spanning from 2005 to 2020(Q1) across the 17 Spanish NUTS II regions. Our analysis employs panel data models incorporating regional, year, and quarter fixed effects, as well as linear and quadratic region-specific time trends. We also include other relevant control variables at the regional level, such as house prices, inflation rates, and unemployment rates. Our findings indicate that the Code had a significant and negative effect on the number of new mortgage loans, the average interest rate, and the average ratio between monthly mortgage payments and wage costs.