Exposure to Real Estate Losses: Evidence from the US Banks

 
Author/Editor: Igan, Deniz ; Pinheiro, Marcelo
 
Publication Date: April 01, 2009
 
Electronic Access: Free Full text (PDF file size is 445KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
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.
 
Series: Working Paper No. 09/79
Subject(s): Banking sector | United States | Housing | Commercial banks | Consumer credit | Commercial credit | Real estate prices | Payments arrears | Economic models

Author's Keyword(s): Residential and Commercial Real Estate | Delinquency | Distance to Default.
 
English
Publication Date: April 01, 2009
Format: Paper
Stock No: WPIEA2009079 Pages: 33
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
Please address any questions about this title to publications@imf.org