Within-Bank Spillovers of Real Estate Shocks

51 Pages Posted: 29 Sep 2013 Last revised: 3 Dec 2017

See all articles by Vicente Cuñat

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group

Dragana Cvijanovic

University of North Carolina Kenan-Flagler Business School

Kathy Yuan

London School of Economics & Political Science (LSE) - Department of Finance

Date Written: November 30, 2017

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

Suggested Citation

Cuñat, Vicente and Cvijanovic, Dragana and Yuan, Kathy Zhichao, Within-Bank Spillovers of Real Estate Shocks (November 30, 2017). Available at SSRN: https://ssrn.com/abstract=2332177 or http://dx.doi.org/10.2139/ssrn.2332177

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.vicentecunat.com

Dragana Cvijanovic (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Kathy Zhichao Yuan

London School of Economics & Political Science (LSE) - Department of Finance ( email )

Old Building
Houghton Street
London, London WC2A 2AE
United Kingdom
+44 (0)20 7955 6407 (Phone)
+44 (0)20 7849 4647 (Fax)

HOME PAGE: http://fmg.lse.ac.uk/~kathy

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