The Transmission of Bank Liquidity Shocks: Evidence from House Prices

51 Pages Posted: 20 Oct 2012 Last revised: 28 Mar 2018

Date Written: April 17, 2017

Abstract

This paper uses the 2007-2009 financial crisis as a negative liquidity shock on banks in the US and analyzes its transmission to the real economy. The ex-ante heterogeneity in the amount of long-term debt that matured during the crisis is used to measure the variation in banks' exposure to the liquidity shock. I find that banks transmitted the liquidity shock to the real economy by reducing their loan supply. The reduction was particularly strong for real estate loans. As a result, house prices declined in the MSAs where these banks have branches. Bank capital plays a significant role in the transmission: Under-capitalized banks transmitted the liquidity shock, whereas well-capitalized banks' lending did not show any decline.

Keywords: Financial crisis; Bank liquidity shocks; Bank capital; Credit supply shocks; House prices

JEL Classification: G21, G28, R31

Suggested Citation

Dursun-de Neef, H. Özlem, The Transmission of Bank Liquidity Shocks: Evidence from House Prices (April 17, 2017). Available at SSRN: https://ssrn.com/abstract=2163975 or http://dx.doi.org/10.2139/ssrn.2163975

H. Özlem Dursun-de Neef (Contact Author)

Goethe University Frankfurt ( email )

House of Finance, Campus Westend
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Frankfurt am Main 60629
Germany

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