IDEAS home Printed from https://ideas.repec.org/a/oup/rcorpf/v7y2018i2p157-193..html
   My bibliography  Save this article

Within-Bank Spillovers of Real Estate Shocks

Author

Listed:
  • Vicente Cuñat
  • Dragana Cvijanović
  • Kathy Yuan

Abstract

By considering banks as portfolios of assets in different locations, we study how real estate shocks are transmitted 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 nonperforming loans. These results provide evidence of internal contagion in real estate shocks within banks.Received December 4, 2017; editorial decision February 16, 2018 by Editor Gregor Matvos. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Vicente Cuñat & Dragana Cvijanović & Kathy Yuan, 2018. "Within-Bank Spillovers of Real Estate Shocks," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 7(2), pages 157-193.
    • Handle: RePEc:oup:rcorpf:v:7:y:2018:i:2:p:157-193.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rcfs/cfy001
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cortés, Kristle Romero & Strahan, Philip E., 2017. "Tracing out capital flows: How financially integrated banks respond to natural disasters," Journal of Financial Economics, Elsevier, vol. 125(1), pages 182-199.
    2. Ashcraft, Adam B. & Campello, Murillo, 2007. "Firm balance sheets and monetary policy transmission," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1515-1528, September.
    3. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, vol. 102(6), pages 2381-2409, October.
    4. Stein, Jeremy C, 1997. "Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    5. Kashyap, Anil K. & Stein, Jeremy C., 1995. "The impact of monetary policy on bank balance sheets," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 151-195, June.
    6. Manconi, Alberto & Massa, Massimo & Yasuda, Ayako, 2012. "The role of institutional investors in propagating the crisis of 2007–2008," Journal of Financial Economics, Elsevier, vol. 104(3), pages 491-518.
    7. Brian H. Boyer & Tomomi Kumagai & Kathy Yuan, 2006. "How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices," Journal of Finance, American Finance Association, vol. 61(2), pages 957-1003, April.
    8. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1253-1296.
    9. Nicola Cetorelli & Linda S. Goldberg, 2012. "Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession," American Economic Review, American Economic Association, vol. 102(3), pages 213-218, May.
    10. Erik P. Gilje & Elena Loutskina & Philip E. Strahan, 2016. "Exporting Liquidity: Branch Banking and Financial Integration," Journal of Finance, American Finance Association, vol. 71(3), pages 1159-1184, June.
    11. Chotibhak Jotikasthira & Christian Lundblad & Tarun Ramadorai, 2012. "Asset Fire Sales and Purchases and the International Transmission of Funding Shocks," Journal of Finance, American Finance Association, vol. 67(6), pages 2015-2050, December.
    12. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    13. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
    14. Bruno, Valentina & Shin, Hyun Song, 2015. "Capital flows and the risk-taking channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 119-132.
    15. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 102(5), pages 2301-2326.
    16. Becker, Bo, 2007. "Geographical segmentation of US capital markets," Journal of Financial Economics, Elsevier, vol. 85(1), pages 151-178, July.
    17. Ashcraft, Adam B., 2006. "New Evidence on the Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 751-775, April.
    18. Christian A. L. Hilber & Wouter Vermeulen, 2016. "The Impact of Supply Constraints on House Prices in England," Economic Journal, Royal Economic Society, vol. 126(591), pages 358-405, March.
    19. Daniel Paravisini, 2008. "Local Bank Financial Constraints and Firm Access to External Finance," Journal of Finance, American Finance Association, vol. 63(5), pages 2161-2193, October.
    20. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September.
    21. Puri, Manju & Rocholl, Jörg & Steffen, Sascha, 2011. "Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects," Journal of Financial Economics, Elsevier, vol. 100(3), pages 556-578, June.
    22. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-1442, September.
    23. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    24. Tobias Adrian & Paolo Colla & Hyun Song Shin, 2013. "Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007 to 2009," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 159-214.
    25. Lamont, Owen A. & Polk, Christopher, 2002. "Does diversification destroy value? Evidence from the industry shocks," Journal of Financial Economics, Elsevier, vol. 63(1), pages 51-77, January.
    26. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    27. Sekine, Toshitaka & Kobayashi, Keiichiro & Saita, Yumi, 2003. "Forbearance Lending: The Case of Japanese Firms," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 69-92, August.
    28. Dragana Cvijanović, 2014. "Real Estate Prices and Firm Capital Structure," The Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2690-2735.
    29. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
    30. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-141, February.
    31. Alessandra Fogli & Enoch Hill & Fabrizio Perri, 2013. "The Geography of the Great Recession," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 305-331.
    32. repec:hal:spmain:info:hdl:2441/75koqefued8i7pihbrl9u84p4u is not listed on IDEAS
    33. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
    34. Gregor Matvos & Amit Seru, 2014. "Resource Allocation within Firms and Financial Market Dislocation: Evidence from Diversified Conglomerates," The Review of Financial Studies, Society for Financial Studies, vol. 27(4), pages 1143-1189.
    35. Adam B. Ashcraft, 2005. "Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks," American Economic Review, American Economic Association, vol. 95(5), pages 1712-1730, December.
    36. Max Bruche & Gerard Llobet, 2014. "Preventing Zombie Lending," The Review of Financial Studies, Society for Financial Studies, vol. 27(3), pages 923-956.
    37. Philipp Schnabl, 2012. "The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market," Journal of Finance, American Finance Association, vol. 67(3), pages 897-932, June.
    38. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    39. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    40. Acemoglu, Daron & Parker, Jonathan A. & Woodford, Michael (ed.), 2013. "NBER Macroeconomics Annual 2012," National Bureau of Economic Research Books, University of Chicago Press, number 9780226052779, July.
    41. Carvalho, Daniel & Ferreira, Miguel A. & Matos, Pedro, 2015. "Lending Relationships and the Effect of Bank Distress: Evidence from the 2007–2009 Financial Crisis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(6), pages 1165-1197, December.
    42. Chang, Yuk Ying & Dasgupta, Sudipto, 2007. "Beyond internal capital markets: The in-house transmission of adverse sales shocks and the collateral channel," Journal of Corporate Finance, Elsevier, vol. 13(5), pages 743-770, December.
    43. Iyer, Rajkamal & Da-Rocha-Lopes, Samuel & Peydró, José-Luis & Schoar, Antoinette, 2014. "Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007-2009 Crisis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 27(1), pages 347-372.
    44. Garicano, Luis & Steinwender, Claudia, 2013. "Survive another day: does uncertain financing affect the composition of investment?," LSE Research Online Documents on Economics 48921, London School of Economics and Political Science, LSE Library.
    45. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
    46. Mihir A. Desai & C. Fritz Foley & Kristin J. Forbes, 2008. "Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciations," The Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2857-2888, November.
    47. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    48. Rodney Ramcharan & Stéphane Verani & Skander J. Van Den Heuvel, 2016. "From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply," Journal of Finance, American Finance Association, vol. 71(3), pages 1323-1356, June.
    49. Myron S. Scholes, 2000. "Crisis and Risk Management," American Economic Review, American Economic Association, vol. 90(2), pages 17-21, May.
    50. Jie Gan, 2007. "The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1941-1973, November.
    51. David B. Brown & Bruce Ian Carlin & Miguel Sousa Lobo, 2010. "Optimal Portfolio Liquidation with Distress Risk," Management Science, INFORMS, vol. 56(11), pages 1997-2014, November.
    52. Elena Loutskina & Philip E. Strahan, 2009. "Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations," Journal of Finance, American Finance Association, vol. 64(2), pages 861-889, April.
    53. Itzhak Ben-David & Francesco Franzoni & Rabih Moussawi, 2012. "Hedge Fund Stock Trading in the Financial Crisis of 2007--2009," The Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 1-54.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adriano A. Rampini & S. Viswanathan & Guillaume Vuillemey, 2020. "Retracted: Risk Management in Financial Institutions," Journal of Finance, American Finance Association, vol. 75(2), pages 591-637, April.
    2. Ayberk, İdil & Önder, Zeynep, 2022. "House prices and bank loan portfolios in an emerging market: The role of bank ownership," Economic Modelling, Elsevier, vol. 106(C).
    3. Yubin Huangfu & Haibo Yu & Zuoji Dong & Yingman Wang, 2024. "Research on the Risk Spillover among the Real Economy, Real Estate Market, and Financial System: Evidence from China," Land, MDPI, vol. 13(6), pages 1-26, June.
    4. Dimas Mateus Fazio & Thiago Christiano Silva, 2020. "Housing Collateral Reform and Economic Reallocation," Working Papers Series 522, Central Bank of Brazil, Research Department.
    5. Flannery, Mark J. & Lin, Leming & Wang, Luxi, 2022. "Housing booms and bank growth," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    6. Rampini, Adriano A. & Viswanathan, S. & Vuillemey, Guillaume, 2019. "Risk Management in Financial Institutions," CEPR Discussion Papers 13787, C.E.P.R. Discussion Papers.
    7. Sergio Mayordomo & Omar Rachedi, 2019. "The China syndrome affects banks: the credit supply channel of foreign import competition (Updated February 2020)," Working Papers 1908, Banco de España, revised Feb 2020.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2017. "Do demand or supply factors drive bank credit,in good and crisis times?," Economics Working Papers 1567, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    3. Rhys Bidder & John Krainer & Adam Shapiro, 2021. "De-leveraging or de-risking? How banks cope with loss," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 100-127, January.
    4. repec:fip:fedgfe:2014-115 is not listed on IDEAS
    5. Rhys Bidder & John Krainer & Adam Shapiro, 2021. "De-leveraging or de-risking? How banks cope with loss," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 100-127, January.
    6. Rustom M. Irani & Ralf R. Meisenzahl, 2015. "Loan Sales and Bank Liquidity Risk Management: Evidence from a U.S. Credit Register," Finance and Economics Discussion Series 2015-1, Board of Governors of the Federal Reserve System (U.S.).
    7. Ozan Güler & Mike Mariathasan & Klaas Mulier & Nejat G. Okatan, 2021. "The real effects of banks' corporate credit supply: A literature review," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1252-1285, July.
    8. Degryse, Hans & Matthews, Kent & Zhao, Tianshu, 2018. "SMEs and access to bank credit: Evidence on the regional propagation of the financial crisis in the UK," Journal of Financial Stability, Elsevier, vol. 38(C), pages 53-70.
    9. Ongena, Steven & Peydró, José-Luis & Horen, Neeltje van, 2015. "Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 63(4), pages 698-750.
    10. Ongena, Steven & Schindele, Ibolya & Vonnák, Dzsamila, 2021. "In lands of foreign currency credit, bank lending channels run through?," Journal of International Economics, Elsevier, vol. 129(C).
    11. Philippe Andrade & Christophe Cahn & Henri Fraisse & Jean-Stéphane Mésonnier, 2019. "Can the Provision of Long-Term Liquidity Help to Avoid a Credit Crunch? Evidence from the Eurosystem’s LTRO," Journal of the European Economic Association, European Economic Association, vol. 17(4), pages 1070-1106.
    12. Glancy, David, 2021. "Housing bust, bank lending & employment: Evidence from multimarket banks," Journal of Banking & Finance, Elsevier, vol. 127(C).
    13. Nuri Ersahin & Rustom M. Irani, 2015. "Collateral Values and Corporate Employment," Working Papers 15-30r, Center for Economic Studies, U.S. Census Bureau.
    14. Luisa Carpinelli & Matteo Crosignani, 2017. "The Effect of Central Bank Liquidity Injections on Bank Credit Supply," Finance and Economics Discussion Series 2017-038, Board of Governors of the Federal Reserve System (U.S.).
    15. Iyer, Rajkamal & Da-Rocha-Lopes, Samuel & Peydró, José-Luis & Schoar, Antoinette, 2014. "Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007-2009 Crisis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 27(1), pages 347-372.
    16. Mattia Girotti, 2021. "How monetary policy changes bank liability structure and funding cost," Oxford Economic Papers, Oxford University Press, vol. 73(1), pages 49-75.
    17. Blickle, Kristian, 2022. "Local banks, credit supply, and house prices," Journal of Financial Economics, Elsevier, vol. 143(2), pages 876-896.
    18. Balduzzi, Pierluigi & Brancati, Emanuele & Schiantarelli, Fabio, 2018. "Financial markets, banks’ cost of funding, and firms’ decisions: Lessons from two crises," Journal of Financial Intermediation, Elsevier, vol. 36(C), pages 1-15.
    19. Bottero, Margherita & Lenzu, Simone & Mezzanotti, Filippo, 2020. "Sovereign debt exposure and the bank lending channel: Impact on credit supply and the real economy," Journal of International Economics, Elsevier, vol. 126(C).
    20. Chakraborty, Indraneel & Goldstein, Itay & MacKinlay, Andrew, 2020. "Monetary stimulus and bank lending," Journal of Financial Economics, Elsevier, vol. 136(1), pages 189-218.
    21. Hazama, Makoto & Hosono, Kaoru & Uesugi, Iichiro, 2016. "The Effect of Real Estate Prices on Banks' Lending Channel," HIT-REFINED Working Paper Series 53, Institute of Economic Research, Hitotsubashi University.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rcorpf:v:7:y:2018:i:2:p:157-193.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/rcfs .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.