The Transmission of Real Estate Shocks Through Multinational Banks

European Banking Center Discussion Paper Series No. 2014-001

CentER Discussion Paper Series No. 2014-011

56 Pages Posted: 4 Feb 2014

See all articles by Ata Can Bertay

Ata Can Bertay

World Bank - Development Research Group (DECRG); Tilburg University - European Banking Center

Date Written: February 3, 2014

Abstract

This paper investigates the credit supply of banks in response to domestic and foreign real estate price changes. Using a large international dataset of multinational banks, we find evidence of a significant transmission of domestic real estate shocks into lending abroad. A 1% decrease in real estate prices in home country, in particular, leads to a 0.2-0.3% decrease in credit growth in the foreign subsidiary. This response, however, is asymmetric: only negative house price changes are transmitted. Stricter regulation of activities of parent banks can reduce this effect, indicating a role for regulation in alleviating the transmission of real estate shocks. Further, the analysis of the impact of real estate shocks on foreign subsidiary funding indicates that shocks are transmitted through changes in long-term debt funding and equity.

Keywords: Internal capital markets, multinational banking, transmission of real estate shocks

JEL Classification: F23, F36, G21

Suggested Citation

Bertay, Ata Can, The Transmission of Real Estate Shocks Through Multinational Banks (February 3, 2014). European Banking Center Discussion Paper Series No. 2014-001; CentER Discussion Paper Series No. 2014-011. Available at SSRN: https://ssrn.com/abstract=2389957 or http://dx.doi.org/10.2139/ssrn.2389957

Ata Can Bertay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
+1 202 458 7253 (Phone)

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

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