Bank Balance Sheets and Liquidation Values: Evidence from Real Estate Collateral

Review of Financial Studies (2017)

57 Pages Posted: 23 Oct 2017 Last revised: 20 Apr 2019

See all articles by Rodney Ramcharan

Rodney Ramcharan

University of Southern California, Marshall School of Business

Date Written: December 22, 2017

Abstract

This paper finds that a decline in bank equity or liquidity reduces liquidation values of bank-owned real estate and accelerates the pace of asset sales. Buyers of these assets earn significant returns for providing liquidity to banks, as prices tend to rebound sharply after sales by illiquid banks. Lower liquidation values also depress the prices of nearby real estate transactions. Policy interventions such as equity injections and central bank asset purchases increase liquidation values by providing institutions with the balance sheet capacity to slow asset sales. This evidence suggests that balance sheet adjustments at financial institutions can explain real asset price dynamics.

Keywords: Financial Crises, Asset Prices, Banks

JEL Classification: G21, G33, G01

Suggested Citation

Ramcharan, Rodney, Bank Balance Sheets and Liquidation Values: Evidence from Real Estate Collateral (December 22, 2017). Review of Financial Studies (2017). Available at SSRN: https://ssrn.com/abstract=3057094 or http://dx.doi.org/10.2139/ssrn.3057094

Rodney Ramcharan (Contact Author)

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

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