The Transmission of Bank Liquidity Shocks: Evidence from House Prices*. (24th January 2018)

• Record Type: Journal Article
• Authors: Dursun-de Neef, H Özlem
• Is Part Of: Review of finance. Volume 23:Number 3(2019)
• Page Start: 629
• Page End: 658
• Publication Date: 2018-01-24
• Subjects: G21 -- G28 -- R31; Financial crisis -- Bank liquidity shocks -- Bank capital -- Credit supply shocks -- House prices; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfy001
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: This article uses the 2007–09 financial crisis as a negative liquidity shock on banks in the USA and analyzes its transmission to the real economy. The ex ante heterogeneity in the amount of long-term debt that matured during the crisis is used to measure the variation in banks' exposure to the liquidity shock. I find that banks transmitted the liquidity shock to the real economy by reducing their loan supply. The reduction was particularly strong for real estate loans. As a result, house prices declined in the MSAs where these banks have branches. Bank capital plays a significant role in the transmission: under-capitalized banks transmitted the liquidity shock, whereas well-capitalized banks' lending did not show any decline.