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The Transmission of Real Estate Shocks Through Multinational Banks

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  • Bertay, A.C.

    (Tilburg University, Center for Economic Research)

Abstract

Abstract: This paper investigates the credit supply of banks in response to domestic and foreign real estate price changes. Using a large international dataset of multinational banks, we find evidence of a significant transmission of domestic real estate shocks into lending abroad. A 1% decrease in real estate prices in home country, in particular, leads to a 0.2-0.3% decrease in credit growth in the foreign subsidiary. This response, however, is asymmetric: only negative house price changes are transmitted. Stricter regulation of activities of parent banks can reduce this effect, indicating a role for regulation in alleviating the transmission of real estate shocks. Further, the analysis of the impact of real estate shocks on foreign subsidiary funding indicates that shocks are transmitted through changes in long-term debt funding and equity.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2014-011.

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Date of creation: 2014
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Handle: RePEc:dgr:kubcen:2014011

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Web page: http://center.uvt.nl

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Keywords: Internal capital markets; multinational banking; transmission of real estate shocks;

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