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Commercial bank failures during the Great Recession: the real (estate) story

Author

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  • Antoniades, Adonis

Abstract

The primary driver of commercial bank failures during the Great Recession was exposure to the real estate sector, not aggregate funding strains. The main \toxic" exposure was credit to non-household real estate borrowers, not traditional home mortgages or agency-issued MBS. Private-label MBS contributed to the failure of large banks only. Failed banks skewed their portfolios towards product categories that performed poorly on aggregate, and within each category invested in assets of lower quality than survivor banks did. They expanded more rapidly into real estate during the pre-crisis period, but rapid growth alone cannot explain differences in asset performance. JEL Classification: G21, G28

Suggested Citation

  • Antoniades, Adonis, 2015. "Commercial bank failures during the Great Recession: the real (estate) story," Working Paper Series 1779, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20151779
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1779.en.pdf
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    References listed on IDEAS

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    1. Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2011. "Liquidity Management and Corporate Investment During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1944-1979.
    2. Vincent Reinhart, 2011. "A Year of Living Dangerously: The Management of the Financial Crisis in 2008," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 71-90, Winter.
    3. Dinara Bayazitova & Anil Shivdasani, 2012. "Assessing TARP," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 377-407.
    4. Beltratti, Andrea & Stulz, René M., 2012. "The credit crisis around the globe: Why did some banks perform better?," Journal of Financial Economics, Elsevier, vol. 105(1), pages 1-17.
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    Citations

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    Cited by:

    1. Pandey, Ashish, 2016. "The Indian banking system: A ticking time bomb," MPRA Paper 71792, University Library of Munich, Germany.
    2. Duca, John V. & Ling, David C., 2015. "The other (commercial) real estate boom and bust: the effects of risk premia and regulatory capital arbitrage," Working Papers 1504, Federal Reserve Bank of Dallas, revised 01 Jun 2015.
    3. Hamed Ghiaie, 2018. "Macroeconomic Consequences of Bank’s Assets Reallocation After Mortgage Defaults," THEMA Working Papers 2018-12, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    4. repec:eee:jbfina:v:97:y:2018:i:c:p:238-256 is not listed on IDEAS
    5. repec:bla:coecpo:v:37:y:2019:i:1:p:121-137 is not listed on IDEAS
    6. repec:kap:rqfnac:v:51:y:2018:i:1:d:10.1007_s11156-017-0662-9 is not listed on IDEAS
    7. repec:ntj:journl:v:70:y:2017:i:3:p:549-584 is not listed on IDEAS
    8. repec:col:000442:015646 is not listed on IDEAS
    9. Gazi Kara & Cindy M. Vojtech, 2017. "Bank Failures, Capital Buffers, and Exposure to the Housing Market Bubble," Finance and Economics Discussion Series 2017-115, Board of Governors of the Federal Reserve System (US).
    10. John V. Duca & Patric H. Hendershott & David C. Ling, 2017. "How Taxes and Required Returns Drove Commercial Real Estate Valuations over the Past Four Decades," National Tax Journal, National Tax Association;National Tax Journal, vol. 70(3), pages 549-584, September.
    11. John V. Duca & Lilit Popoyan & Susan M. Wachter, 2019. "Real Estate And The Great Crisis: Lessons For Macroprudential Policy," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 121-137, January.
    12. repec:ris:isecst:0165 is not listed on IDEAS
    13. repec:seb:journl:v:16:y:2018:i:2:p:115-145 is not listed on IDEAS
    14. Coen, Jamie & Francis, William & Rostom, May, 2017. "The determinants of UK credit union failure," Bank of England working papers 658, Bank of England.

    More about this item

    Keywords

    bank failures; credit lines; Great Recession; mortgage-backed securities; real estate;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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