House prices, bank balance sheets, and bank credit supply

2010

We show that since 1994, branching deregulations in the U.S have signi…cantly affected the supply of mortgage credit, and ultimately house prices. With deregulation, the number and volume of originated mortgage loans increase, while denial rates fall.

SSRN Electronic Journal, 2011

Association 2012 Meetings, and Yale School of Management for thoughtful comments. We also thank Andrew Cramond from Dataquick for help with the data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

SSRN Electronic Journal, 2017

Was the bank credit crunch following the collapse of Lehman Brothers in September 2008 in many economies due to a loan supply collapse or to a decrease in loan demand? This paper investigates the effects of UK banks' pre-crises exposure to residential property markets on their post-crisis business lending to explore the existence of a negative post-crisis loan supply shock. We isolate the loan supply effect from a loan demand effect by using a unique quasi-experimental setting and a rich, tailor-made micro-level data set on bank lending volumes, bank balance sheets and mortgage loan characteristics. Controlling for a range of bank-specific factors, we find that banks with larger shares of residential mortgages in total loans in 2008 Q2 reduced their lending to business more after 2008 Q3. Post-crisis lending to business is also sensitive to the riskiness of banks' mortgage portfolios. Banks having more mortgages to borrowers with impaired credit history, or more mortgages to the self-employed, or mortgages with higher loan to value ratios prior to the crisis reduced their lending to non-financial businesses more.

2000

Although there is considerable evidence that pressure on commercial banks' capital positions in the early 1990s reduced their real estate lending, there is little systematic evidence that real estate activity was appreciably affected by the bank capital crunch. Using data for 1986 through 1992 by state, we estimated the effects of the bank capital crunch and of national and local economic conditions on building permits, construction contracts, housing starts, mortgage originations, and sales.

2016

The shocks to real estate prices potentially have effects on banks' balance sheets, their lending behavior, and eventually economic activities. We examine the existence of the bank lending channel in Japan during the 2007–2013 global financial crisis. We identify the heterogeneous shocks to real estate prices that affect banks by summarizing the land prices of their borrowing firms. We use a comprehensive database on firm-bank relationships as well as information on land prices for more than 20,000 locational points in Japan. We find that after controlling for fixed effects, a bank that faces a rise in land prices increases its capital, total loans, real estate loans, and loans backed by real estate collateral. We also find that the increased land prices do not significantly change the amount of non-real estate loans or loans without real estate collateral. Further, after controlling for time-varying firm fixed effects, increased land prices cause banks to reduce their transacti...

2019

We analyse the effect of credit supply on households' homeownership status and mortgage debt, as well as other variables relating to housing costs and home equity. We demonstrate that banking deregulation as enacted by the Interstate Banking and Branching Efficiency Act (IBBEA) together with states' autonomy to set the degree and timing of deregulation provides an exogenous shift in credit supply which shows variation across states and time. We use this variation to isolate the effect of credit supply from confounding factors which could simultaneously affect credit supply and demand. Using a rich individual-level panel covering the period 1996 to 2008, and controlling for individual and region-year fixed effects, we find that a shift from full regulation to full deregulation increases the probability of owning a home by one, and of having a mortgage by two percentage points. The deregulation observed between 1990 and 2005 can explain at least one fifth, and up to 45% of the...

SSRN Electronic Journal, 2000

In order to gain more insight into the relationship between housing prices and mortgage lending, we estimate models for both the Dutch housing and the mortgage market. The empirical analysis presented in this paper offers support for the hypothesis that in the Netherlands housing prices and mortgage lending are interdependent. According to our model, housing prices were influenced by changes in bank lending criteria during the estimation period, even when we control for variables such as disposable household income, mortgage interest rate, demographic developments and the housing stock. Mortgage lending was found to be dependent on housing prices as well as disposable income. Our analysis further suggests that in the short run housing prices can deviate substantially from their long-run equilibrium value.

Journal of Applied Econometrics, 2017

SummaryWe use multivariate unobserved components models to estimate trend and cyclical components in gross domestic product (GDP), credit volumes, and house prices for the USA and the five largest European economies. With the exception of Germany, we find large and long cycles in credit and house prices, which are highly correlated with a medium‐term component in GDP cycles. Differences across countries in the length and size of cycles appear to be related to the properties of national housing markets. The precision of pseudo real‐time estimates of credit and house price cycles is roughly comparable to that of GDP cycles.

2016

It is well reported that the much fluctuations in Real Estate (RE) markets globally are a result of unequal risk burden caused by deficiencies of financial system and speculative nature of those markets. However, the evidence is mixed in terms of whether high house prices lead to over financing of mortgages or vice versa. This work attempted to resolve this issue by using ARDL approach handy to use for time series data for the United States. The empirical results of the work have some noteworthy theoretical and policy implications. In the short run, house prices seem to be causing an increase in money supply and influencing house financing decisions. However in the long run, availability of new mortgage loans and interest impact seem to dominate. Thus, the implication from the study suggests that we have to consider both the short and the long run aspects of policy and its influence on all sectors of the economy while making such policy decisions.

American Economic Review, 2005

I develop and estimate a monetary business cycle model with nominal loans and collateral constraints tied to housing values. Demand shocks move together housing and nominal prices, and are amplified and propagated over time. The financial accelerator is not uniform: nominal debt dampens supply shocks, stabilizing the economy under interest rate control. Structural estimation supports two key model features: collateral effects dramatically improve the response of aggregate demand to house prices shocks; nominal debt improves the sluggish response of output to inflation surprises. Finally, policy evaluation considers the role of house prices and debt indexation in affecting monetary policy trade-offs.