The Effects of Housing Price on the Banking Sector Performance -Evidence from MSA data in the US-

Sung Wook Joh and Seongjun Jeong

Economic Analysis, 2017, vol. 196, 241-263

Abstract: This paper examines the factors affecting bank activities before and after the crisis in 2007. Using banking sector information in metropolitan statistical areas (MSAs) in the US from 2001 to 2014, we find that credit supply and performance of banking sectors depend on MSA level-economic conditions, controlling for other factors. Before the crisis, banks in MSAs with higher real estate market prices show more lending and better accounting performance. After the crisis however, total bank loans do not depend on real-estate prices while MSAs with higher real-estate price indices provide more bank loans to households but fewer loans to commercial and industrial borrowers. MSAs with more household loans show higher non-performing loan ratios (NPLs). In contrast, MSAs with more commercial and industrial loans show lower NPLs. Consequently, the banking sectors in MSAs with lower real-estate price indices have higher rates of return on assets (ROA). These results suggest that the recovery of real-estate markets does not necessarily lead to better performance by the surviving banks. JEL Classification Codes: G01, G20, G21

Keywords: Credit supply; Bank Performance; Real estate market; Non-Performing Loan (search for similar items in EconPapers)
Date: 2017
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