Do Exposures to Sagging Real Estate, Subprime or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home?

37 Pages Posted: 21 Jun 2016

See all articles by Steven Ongena

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Gunseli Tumer-Alkan

VU Amsterdam; Vrije Universiteit Amsterdam, School of Business and Economics

Natalja von Westernhagen

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: 2015

Abstract

We investigate how differential exposures by German banks to the US real estate market during the recent financial crisis affect their corporate lending in Germany. Using unique bank-level exposure data, we distinguish between three different types of bank exposures, i.e. direct exposure to the US real estate sector, direct exposure to subprime lenders in the US, and indirect exposure through the liquidity provided to ABCP conduits. We find that banks with a higher exposure to the US real estate sector and to conduits cut their lending to German firms by more following a decrease in US home prices than banks that do not have such an exposure. Moreover, these banks then also shift their lending to industry-region combinations with lower insolvency ratios. Hence possible losses abroad shift bank lending at home, and the size of this effect depends on the type and the degree of exposure the bank has.

Keywords: financial sector, bank lending, real estate exposure, subprime, conduits

JEL Classification: G01, G21, R00

Suggested Citation

Ongena, Steven R. G. and Tumer-Alkan, Gunseli and Tumer-Alkan, Gunseli and von Westernhagen, Natalja, Do Exposures to Sagging Real Estate, Subprime or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home? (2015). Bundesbank Discussion Paper No. 09/2015, Available at SSRN: https://ssrn.com/abstract=2797035 or http://dx.doi.org/10.2139/ssrn.2797035

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gunseli Tumer-Alkan

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5987430 (Phone)

HOME PAGE: http://https://personal.vu.nl/g.tumeralkan/

Natalja Von Westernhagen

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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