Banks' Liability Structure and Mortgage Lending During the Financial Crisis

45 Pages Posted: 10 Aug 2012

See all articles by Jihad C. Dagher

Jihad C. Dagher

International Monetary Fund (IMF) - Research Department

Kazim Kazimov

International Monetary Fund (IMF); Georgetown University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2012


We examine the impact of banks' exposure to market liquidity shocks through wholesale funding on their supply of credit during the financial crisis in the United States. We focus on mortgage lending to minimize the impact of confounding demand factors that could potentially be large when comparing banks' overall lending across heterogeneous categories of credit. The disaggregated data on mortgage applications that we use allows us to study the time variations in banks' decisions to grant mortgage loans, while controlling for bank, borrower, and regional characteristics. The wealth of data also allows us to carry out matching exercises that eliminate imbalances in observable applicant characteristics between wholesale and retail banks, as well as various other robustness tests. We find that banks that were more reliant on wholesale funding curtailed their credit significantly more than retail-funded banks during the crisis. The demand for mortgage credit, on the other hand, declined evenly across wholesale and retail banks. To understand the aggregate implications of our findings, we exploit the heterogeneity in mortgage funding across U.S.Metropolitan Statistical Areas (MSAs) and find that wholesale funding was a strong and significant predictor of a sharper decline in overall mortgage credit at the MSA level.

Keywords: Retail Funding, Wholesale Funding, Liquidity, Credit Supply, Mortgages, Matching, Bank Credit, Banking Sector, Credit Demand, Credit Risk, Global Financial Crisis 2008-2009, General Financial Markets, mortgage, statistics, mortgage credit, probability, mortgage lending, standard errors, probability model, housing supply, mortgages, heteroscedasticity, mortgage applications, samples, equations, mortgage lenders, mortgage loans, equation, mortgage application, housing finance, estimation method, linear regression, outliers, home mortgage, housing finance agency, standard deviation, standard error, mortgage market, conventional mortgages, regression analysis, mortgage credit risk, exogenous fac

JEL Classification: G21, E50

Suggested Citation

Dagher, Jihad C. and Kazimov, Kazim, Banks' Liability Structure and Mortgage Lending During the Financial Crisis (June 2012). IMF Working Paper No. 12/155. Available at SSRN:

Jihad C. Dagher (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Kazim Kazimov

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Georgetown University ( email )

Washington, DC 20057
United States

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