Exposure to Real Estate Losses: Evidence from the US Banks

Marcelo Pinheiro and Deniz Igan

No 2009/079, IMF Working Papers from International Monetary Fund

Abstract: We implement a three-step procedure to assess the extent of exposure to real estate in commercial banks. First, we demonstrate interest rates and income to be the major determinants of delinquency. Then, we adopt a stress testing approach to calculate the impact of any adverse changes in these determinants. This suggests that a 1.3 percentage point increase in mortgage interest rate leads to a 20 percent decrease in a typical bank's distance to default. Finally, we look at the cross-sectional differences and indentify the banks with rapid loan growth along with high cost-income ratio as the most vulnerable.

Keywords: WP; real estate; loan; delinquency rate; Residential and Commercial Real Estate; Delinquency; Distance to Default; mortgage interest rate; loan portfolio; credit growth; subprime mortgage; loan delinquency rate; loan product; loan composition; return on assets; loan-deposit ratio; Loans; Real estate prices; Mortgages; Bank credit; Personal income (search for similar items in EconPapers)
Pages: 33
Date: 2009-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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