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Do Exposures to Sagging Real Estate, Subprime, or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home?

Steven Ongena (), Günseli Tümer–Alkan and Natalja von Westernhagen

Review of Finance, 2018, vol. 22, issue 4, 1335-1373

Abstract: We investigate how differential exposures by German banks to the US real-estate market affect domestic lending in Germany when home prices started to decline in the USA. We find that banks with an exposure to the US real-estate sector and to conduits shift their domestic lending to industry–region combinations with lower insolvency ratios following a decrease in US home prices. These banks also contract their lending to German firms more than banks that do not have such exposure. We mainly document that possible losses abroad shift bank lending at home where the size of the effect depends on the type and the degree of exposure the bank has.

Keywords: Financial sector; Bank lending; Real-estate exposure; Subprime; Conduits (search for similar items in EconPapers)
JEL-codes: G01 G21 R00 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Do exposures to sagging real estate, subprime or conduits abroad lead to contraction and flight to quality in bank lending at home? (2015) Downloads
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