Bank integration and co-movements across housing markets

Stanimira Milcheva () and Bing Zhu

Journal of Banking & Finance, 2016, vol. 72, issue S, S148-S171

Abstract: This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal.

Keywords: House prices; Bank capital flows; Bank integration; Dynamic spatial panel model; Global banking channel; Mortgage market development (search for similar items in EconPapers)
JEL-codes: C23 F36 G15 R3 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:72:y:2016:i:s:p:s148-s171

DOI: 10.1016/j.jbankfin.2015.07.002

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