Within-Bank Spillovers of Real Estate Shocks

Abstract

By considering banks as portfolios of assets in different locations, we study how real estate shocks get amplified across bank’s business areas while controlling for local demand shocks and bank location–specific factors. Affected banks substantially alter their loan portfolios: we find evidence of real estate price declines affecting both real estate and non-real estate types of lending. Banks also roll over and fail to liquidate problematic loans, while accumulating more non-performing loans. These results provide evidence of bank balance sheet amplification of real estate shocks.

Keywords: Banks, Real Estate, Contagion, Crisis, Regulatory Capital

JEL Classification: G21, G01, R30