Housing Price Booms and Crowding-Out Effects in Bank Lending

Review of Financial Studies, Forthcoming

University of Miami Business School Research Paper No. 18-2

75 Pages Posted: 8 Apr 2013 Last revised: 10 Oct 2018

See all articles by Indraneel Chakraborty

Indraneel Chakraborty

University of Miami

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Andrew MacKinlay

Virginia Tech

Date Written: March 5, 2018

Abstract

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

Chakraborty, Indraneel and Goldstein, Itay and MacKinlay, Andrew, Housing Price Booms and Crowding-Out Effects in Bank Lending (March 5, 2018). Review of Financial Studies, Forthcoming; University of Miami Business School Research Paper No. 18-2. Available at SSRN: https://ssrn.com/abstract=2246214 or http://dx.doi.org/10.2139/ssrn.2246214

Indraneel Chakraborty

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Andrew MacKinlay (Contact Author)

Virginia Tech ( email )

1016 Pamplin Hall (0221)
880 West Campus Drive
Blacksburg, VA 24060-0221
United States

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