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Do Exposures to Sagging Real Estate, Subprime or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home?


Ongena, Steven; Tumer-Alkan, Gunseli; von Westernhagen, Natalja (2018). Do Exposures to Sagging Real Estate, Subprime or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home? Review of Finance, 22(4):1335-1373.

Abstract

We investigate how differential exposures by German banks to the US real estate market affect domestic lending in Germany when home prices started to decline in the US.
We find that banks with an exposure to the US real estate sector and to conduits shift their domestic lending to industry–region combinations with lower insolvency ratios following a decrease in US home prices. These banks also contract their lending to German firms more than banks that do not have such exposure. We mainly document that possible losses abroad shift bank lending at home where the size of the effect depends on the type and the degree of exposure the bank has.

Abstract

We investigate how differential exposures by German banks to the US real estate market affect domestic lending in Germany when home prices started to decline in the US.
We find that banks with an exposure to the US real estate sector and to conduits shift their domestic lending to industry–region combinations with lower insolvency ratios following a decrease in US home prices. These banks also contract their lending to German firms more than banks that do not have such exposure. We mainly document that possible losses abroad shift bank lending at home where the size of the effect depends on the type and the degree of exposure the bank has.

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Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:1 July 2018
Deposited On:12 Sep 2018 14:24
Last Modified:04 Jun 2020 13:06
Publisher:Oxford University Press
ISSN:1572-3097
Additional Information:This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The definitive publisher-authenticated version Review of Finance (2018), 22(4):1335-1373. is available online at: https://doi.org/10.1093/rof/rfy011 .
OA Status:Green
Publisher DOI:https://doi.org/10.1093/rof/rfy011
Other Identification Number:merlin-id:16244

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