Import Competition and Bank Portfolio Rebalancing

Abstract

This paper shows that the rise in import competition from China during the period from 1999 to 2006 resulted in a rebalancing of U.S. bank loan portfolios from business to mortgage credit. Banks with a larger exposure increase mortgage origination, move from more- to less-exposed counties, and increase risk-taking by moving to areas with no lending history. Lower mortgage securitization activity and relatively faster growth of real estate loans on bank balance sheets confirm a rebalancing of bank credit portfolios towards real estate loans for banks with a larger exposure to the rise in imports from China.

Keywords: Import competition, mortgage lending, Portfolio reallocation, Financial crisis

JEL Classification: G21, R30, B17, F14, F49