Exposure to Real Estate Losses: Evidence from the US Banks

April 1, 2009

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Format: Chicago

Marcelo Pinheiro, and Deniz O Igan. Exposure to Real Estate Losses: Evidence from the US Banks, (USA: International Monetary Fund, 2009) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Bank credit, Banking, Financial institutions, Loans, Money, Mortgages, National accounts, Personal income, Prices, Real estate prices

Keywords: Bank credit, Credit growth, Delinquency, Delinquency rate, Distance to Default, Loan, Loan composition, Loan delinquency rate, Loan portfolio, Loan product, Loan-deposit ratio, Loans, Mortgage interest rate, Mortgages, Personal income, Real estate, Real estate prices, Residential and Commercial Real Estate, Return on assets, Subprime mortgage, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/079
Stock No:

WPIEA2009079
ISBN:

9781451872262
ISSN:

1018-5941

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