Exposure to Real Estate Losses: Evidence from the US Banks
Electronic Access:
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Summary:
We implement a three-step procedure to assess the extent of exposure to real estate in commercial banks. First, we demonstrate interest rates and income to be the major determinants of delinquency. Then, we adopt a stress testing approach to calculate the impact of any adverse changes in these determinants. This suggests that a 1.3 percentage point increase in mortgage interest rate leads to a 20 percent decrease in a typical bank's distance to default. Finally, we look at the cross-sectional differences and indentify the banks with rapid loan growth along with high cost-income ratio as the most vulnerable.
Series:
Working Paper No. 2009/079
Subject:
Bank credit Banking Financial institutions Loans Money Mortgages National accounts Personal income Prices Real estate prices
English
Publication Date:
April 1, 2009
ISBN/ISSN:
9781451872262/1018-5941
Stock No:
WPIEA2009079
Pages:
33
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