The Effect of Real Estate Prices on Banks' Lending Channel

The shocks to real estate prices potentially have effects on banks' balance sheets, their lending behavior, and eventually economic activities. We examine the existence of the bank lending channel in Japan during the 2007–2013 global financial crisis. We identify the heterogeneous shocks to real estate prices that affect banks by summarizing the land prices of their borrowing firms. We use a comprehensive database on firm-bank relationships as well as information on land prices for more than 20,000 locational points in Japan. We find that after controlling for fixed effects, a bank that faces a rise in land prices increases its capital, total loans, real estate loans, and loans backed by real estate collateral. We also find that the increased land prices do not significantly change the amount of non-real estate loans or loans without real estate collateral. Further, after controlling for time-varying firm fixed effects, increased land prices cause banks to reduce their transactional relationships with firms both in terms of extensive and intensive margins. We provide several possible explanations for the difference in the results between bank-level estimations and matched bank-firm estimations.

Institute of Economic Research, Hitotsubashi University

2016-03

English(eng)

technical report

VoR

33

基盤研究(S) = Grants-in-Aid for Scientific Research (S)

Working Paper Series / Real Estate Markets, Financial Crisis, and Economic Growth An Integrated Economic Approach

https://hdl.handle.net/10086/27772