Within-Bank Spillovers of Real Estate Shocks

Vicente Cuñat, Dragana Cvijanović and Kathy Yuan

The Review of Corporate Finance Studies, 2018, vol. 7, issue 2, 157-193

Abstract: By considering banks as portfolios of assets in different locations, we study how real estate shocks are transmitted 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 nonperforming loans. These results provide evidence of internal contagion in real estate shocks within banks.Received December 4, 2017; editorial decision February 16, 2018 by Editor Gregor Matvos. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Date: 2018
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Working Paper: Within-bank spillovers of real estate shocks (2018)
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