Commercial Banks and Real Estate Lending: The Texas Experience

Robert Allen Eisenbeis (), Paul M Horvitz and Rebel A. Cole ()

Journal of Regulatory Economics, 1996, vol. 10, issue 3, pages 275-90

Abstract: This paper examines the performance of Texas commercial banks specializing in mortgage lending during the difficult times of the late 1980s and early 1990s to investigate how representative their experience as compared with that of banks concentrating in real estate lending across the country. The results show that Texas REBs performed very poorly during the 1980s and early 1990s, but this was because the Texas REBs were clearly different from the majority of the banks classified as REBs in the rest of the country. In contract to non-Texas real estate specializing banks, those in Texas banks put substantial assets into much riskier construction and development loans, and in loans on commercial property, such as office buildings, hotels and shopping centers. In a poor real estate market, these loans performed very poorly. The analysis indicates that the Texas experience is not a basis for rejecting the view that the commercial bank industry can safely replace the declining thrift industry as a major source of residential mortgage financing. Copyright 1996 by Kluwer Academic Publishers

Date: 1996

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