US banking regulators have recently launched a sweeping overhaul of capital requirements. Their primary goal is to restore banks to the forefront of mortgage origination. Yet it seems unlikely that the new credit-risk calibration, taken alone, will reshape the market. The widespread use of loan securitization and leverage constraints could limit its impact. By reducing risk weights on credit lines extended to non-bank mortgage lenders, the reform could even undermine its intended purpose—potentially encouraging banks to remain in the shadow of non-banks.
