Housing Price Booms and Crowding-Out Effects in Bank Lending
Review of Financial Studies, Forthcoming
75 Pages Posted: 8 Apr 2013 Last revised: 10 Oct 2018
Date Written: March 5, 2018
Analyzing the period 1988--2006, we document that banks that are active in strong housing markets increase mortgage lending and decrease commercial lending. Firms that borrow from these banks have significantly lower investment. This is especially pronounced for firms that are more capital constrained or borrow from more-constrained banks. Various extensions and robustness analyses are consistent with the interpretation that commercial loans were crowded out by banks responding to profitable opportunities in mortgage lending, rather than with a demand-based interpretation. The results suggest that housing prices appreciations have negative spillovers to the real economy, which were overlooked thus far.
Keywords: Bank Loans, Housing Shocks, Investment Policy
JEL Classification: G21, G31, G32
Suggested Citation: Suggested Citation