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Cross‐Border Residential Lending: Theory and Evidence from the European Sovereign Debt Crisis

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  • Jaime Luque

Abstract

We examine bank strategies to rebalance residential mortgage portfolios toward other geographical regions in the context of the European sovereign debt crisis. For banks in Greece, Ireland, Cyprus, Italy, Portugal and Spain (GICIPS), we find evidence of flight‐to‐quality if banks were undercapitalized and had high funding cost, and evidence of risky‐lending if banks were undercapitalized but without funding problems. For banks in core safe European countries, we find evidence of flight‐to‐quality among banks with high capital ratios, and risky‐lending among banks with low funding cost. We rationalize these empirical results with a general equilibrium model of cross‐border mortgage lending.

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  • Jaime Luque, 2020. "Cross‐Border Residential Lending: Theory and Evidence from the European Sovereign Debt Crisis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(4), pages 1136-1167, December.
  • Handle: RePEc:bla:reesec:v:48:y:2020:i:4:p:1136-1167
    DOI: 10.1111/1540-6229.12214
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    1. Luque, Jaime, 2022. "The repo channel of cross-border lending in the European sovereign debt crisis," Journal of Financial Markets, Elsevier, vol. 59(PA).

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