Do exposures to sagging real estate, subprime, or conduits abroad lead to contraction and flight to quality in bank lending at home?

Steven Ongena*, Gunseli Tumer-Alkan, Natalja Von Westernhagen

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

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 USA. 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.

Original languageEnglish
Pages (from-to)1335-1373
Number of pages39
JournalReview of Finance
Volume22
Issue number4
Early online date14 Apr 2018
DOIs
Publication statusPublished - Jul 2018

Keywords

  • Bank lending
  • Conduits
  • Financial sector
  • Real-estate exposure
  • Subprime

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