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
PublisherEconomics
Number of pages56
Volume2014-011
Publication statusPublished - 2014

Publication series

NameCentER Discussion Paper
Volume2014-011

Fingerprint

Real estate
Multinational banks
Foreign subsidiaries
Price changes
Funding
Equity
Credit growth
House prices
Long-term debt
Lending
Credit supply
Home country

Keywords

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

Cite this

Bertay, A. C. (2014). The Transmission of Real Estate Shocks Through Multinational Banks. (CentER Discussion Paper; Vol. 2014-011). Tilburg: Economics.
Bertay, A.C. / The Transmission of Real Estate Shocks Through Multinational Banks. Tilburg : Economics, 2014. (CentER Discussion Paper).
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Bertay, AC 2014 'The Transmission of Real Estate Shocks Through Multinational Banks' CentER Discussion Paper, vol. 2014-011, Economics, Tilburg.

The Transmission of Real Estate Shocks Through Multinational Banks. / Bertay, A.C.

Tilburg : Economics, 2014. (CentER Discussion Paper; Vol. 2014-011).

Research output: Working paperDiscussion paperOther research output

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N1 - Pagination: 56

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N2 - 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.

AB - 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.

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KW - multinational banking

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Bertay AC. The Transmission of Real Estate Shocks Through Multinational Banks. Tilburg: Economics. 2014. (CentER Discussion Paper).