The role of commercial real estate investments in the banking crisis of 1985-92
This article examines the role of commercial real estate investments in the banking crisis of 1985-92, an unprecedented period during which more than 1,300 banks failed. Bank failures are fundamentally important because of the unique role played by financial institutions in the provision of business credit. We discover three striking features of banks failing during this period. First, commercial real estate was only a factor in the bank failures of 1988-92. Second, construction loans played a much larger role in bank failures than permanent loans, and the relationship is strongest with construction loans booked during 1983-1985. Third, other ex ante risk measures are systematically related to banking failure throughout the sample period. These results suggest that risk-seeking banks brought about their own demise and commercial real estate, especially construction lending, was one of the vehicles.
|Date of creation:||02 Aug 1996|
|Date of revision:||01 Nov 2008|
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- Joe Peek & Eric S. Rosengren, 1994. "Bank Real Estate Lending and the New England Capital Crunch," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(1), pages 33-58.
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93-20, Board of Governors of the Federal Reserve System (U.S.).
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- Rebel A. Cole & Robert A. Eisenbeis, 1995.
"The role of principal agent-conflicts in the 1980s thrift crisis,"
Finance and Economics Discussion Series
95-27, Board of Governors of the Federal Reserve System (U.S.).
- Rebel A. Cole & Robert A. Eisenbeis, 1996. "The Role of Principal-Agent Conflicts in the 1980s Thrift Crisis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(2), pages 195-218.
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