The Transmission of Real Estate Shocks Through Multinational Banks

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Abstract

Abstract: This paper investigates the credit supply of banks in response to domestic and foreign real estate price changes. Using a large international dataset of multinational banks, we find evidence of a significant transmission of domestic real estate shocks into lending abroad. A 1% decrease in real estate prices in home country, in particular, leads to a 0.2-0.3% decrease in credit growth in the foreign subsidiary. This response, however, is asymmetric: only negative house price changes are transmitted. Stricter regulation of activities of parent banks can reduce this effect, indicating a role for regulation in alleviating the transmission of real estate shocks. Further, the analysis of the impact of real estate shocks on foreign subsidiary funding indicates that shocks are transmitted through changes in long-term debt funding and equity.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages56
Volume2014-001
Publication statusPublished - 2014

Publication series

NameEBC Discussion Paper
Volume2014-001

Keywords

  • Internal capital markets
  • multinational banking
  • transmission of real estate shocks

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