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Banks' foreign homes

Author

Listed:
  • Schmidt, Kirsten
  • Tonzer, Lena

Abstract

We study whether the low interest rate environment paired with booming housing markets affected banks' foreign activities in terms of commercial and residential real estate backed lending. Using a unique dataset covering systemically relevant banks in the euro area over the period 2015-2022, we find that banks expand their foreign real estate backed lending in the presence of higher lending spreads. The result is especially present given a lack of or misalignment in macroprudential policies across home and destination country. Furthermore, we assess whether banks disclose potential losses conditional on higher lending spreads and borrowing country exposure. We find only better capitalized banks to show higher forbearance ratios. In line with search-for-yield motives, we find that during the COVID-19 crisis low capitalized banks experienced larger loan losses on real-estate backed loans in countries having offered higher rates.

Suggested Citation

  • Schmidt, Kirsten & Tonzer, Lena, 2024. "Banks' foreign homes," Discussion Papers 46/2024, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:311839
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    More about this item

    Keywords

    International banking; real estate backed loans; macroprudential regulation; financial stability;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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