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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?

Author

Listed:
  • Steven Ongena
  • Günseli Tümer–Alkan
  • Natalja von Westernhagen

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.

Suggested Citation

  • Steven Ongena & Günseli Tümer–Alkan & Natalja von Westernhagen, 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, European Finance Association, vol. 22(4), pages 1335-1373.
    • Handle: RePEc:oup:revfin:v:22:y:2018:i:4:p:1335-1373.
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    Cited by:

    1. Galina Hale & Tümer Kapan & Camelia Minoiu & Philip Strahan, 2020. "Shock Transmission Through Cross-Border Bank Lending: Credit and Real Effects," Review of Financial Studies, Society for Financial Studies, vol. 33(10), pages 4839-4882.
    2. Olivier De Jonghe & Hans Dewachter & Klaas Mulier & Steven Ongena & Glenn Schepens, 2020. "Some Borrowers Are More Equal than Others: Bank Funding Shocks and Credit Reallocation [A theory of systemic risk and design of prudential bank regulation]," Review of Finance, European Finance Association, vol. 24(1), pages 1-43.
    3. Niţoi, Mihai & Clichici, Dorina & Moagăr-Poladian, Simona, 2019. "The effects of prudential policies on bank leverage and insolvency risk in Central and Eastern Europe," Economic Modelling, Elsevier, vol. 81(C), pages 148-160.
    4. Dorina Clichici & Victoria Iordachi, 2017. "Volatility of Cross-Border Financial Flows and Policy Responses," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 5(1), June.
    5. Bednarek, Peter & Dinger, Valeriya & te Kaat, Daniel Marcel & von Westernhagen, Natalja, 2020. "Central bank funding and credit risk-taking," Discussion Papers 36/2020, Deutsche Bundesbank.

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    More about this item

    Keywords

    Financial sector; Bank lending; Real-estate exposure; Subprime; Conduits;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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    1. 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 2018) in ReplicationWiki

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