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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Dec 3, 2017

Within-Bank Transmission of Real Estate Shocks


By considering banks as portfolios of assets in different locations, we study how real estate shocks get amplified across bank’s business areas while controlling for local demand shocks and bank location–specific factors. Affected banks substantially alter their loan portfolios: we find evidence of real estate price declines affecting both real estate and non-real estate types of lending. Banks also roll over and fail to liquidate problematic loans, while accumulating more non-performing loans. These results provide evidence of bank balance sheet amplification of real estate shocks.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

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