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The impact of housing markets on banks’ risk-taking behavior: evidence from CESEE

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This study empirically evaluates the impact of housing market dynamics and banks’ housing market exposure on banking sector stability in Central, Eastern and Southeastern Europe (CESEE). We investigate whether there are differences between the behavior of banks located in CESEE EU Member States and the behavior of banks located in the Western Balkans. We find evidence that banks’ exposure to the housing market has a significant positive impact on bank stability in both groups of countries. Furthermore, for real estate banks in CESEE EU Member States, we find that house price dynamics are positively correlated with bank stability. This outcome may possibly be related to the fact that real estate banks in these countries have better housing market expertise and, moreover, to the generally more advanced institutional environment. At the same time, we find a negative relationship between house price dynamics and bank stability for real estate banks in the Western Balkans, which might reflect the less advanced stage of institutional development in the region.

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  • Elona Dushku & Antje Hildebrandt & Erjona Suljoti, 2019. "The impact of housing markets on banks’ risk-taking behavior: evidence from CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3/19, pages 55-75.
    • Handle: RePEc:onb:oenbfi:y:2019:i:q3/19:b:5
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    More about this item

    Keywords

    bank risk; housing markets; housing loans; CESEE;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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