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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?

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  • Ongena, Steven
  • Tümer-Alkan, Günseli
  • von Westernhagen, Natalja

Abstract

We investigate how differential exposures by German banks to the US real estate market during the recent financial crisis affect their corporate lending in Germany. Using unique bank-level exposure data, we distinguish between three different types of bank exposures, i.e. direct exposure to the US real estate sector, direct exposure to subprime lenders in the US, and indirect exposure through the liquidity provided to ABCP conduits. We find that banks with a higher exposure to the US real estate sector and to conduits cut their lending to German firms by more following a decrease in US home prices than banks that do not have such an exposure. Moreover, these banks then also shift their lending to industry-region combinations with lower insolvency ratios. Hence possible losses abroad shift bank lending at home, and the size of this effect depends on the type and the degree of exposure the bank has.

Suggested Citation

  • Ongena, Steven & Tümer-Alkan, Günseli & von Westernhagen, Natalja, 2015. "Do exposures to sagging real estate, subprime or conduits abroad lead to contraction and flight to quality in bank lending at home?," Discussion Papers 09/2015, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:092015
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    Cited by:

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    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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