Banks' Liability Structure and Mortgage Lending During the Financial Crisis

June 1, 2012

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Format: Chicago

Jihad Dagher, and Kazim Kazimov. Banks' Liability Structure and Mortgage Lending During the Financial Crisis, (USA: International Monetary Fund, 2012) accessed December 22, 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 examine the impact of banks’ exposure to market liquidity shocks through wholesale funding on their supply of credit during the financial crisis in the United States. We focus on mortgage lending to minimize the impact of confounding demand factors that could potentially be large when comparing banks’ overall lending across heterogeneous categories of credit. The disaggregated data on mortgage applications that we use allows us to study the time variations in banks’ decisions to grant mortgage loans, while controlling for bank, borrower, and regional characteristics. The wealth of data also allows us to carry out matching exercises that eliminate imbalances in observable applicant characteristics between wholesale and retail banks, as well as various other robustness tests. We find that banks that were more reliant on wholesale funding curtailed their credit significantly more than retail-funded banks during the crisis. The demand for mortgage credit, on the other hand, declined evenly across wholesale and retail banks. To understand the aggregate implications of our findings, we exploit the heterogeneity in mortgage funding across U.S. Metropolitan Statistical Areas (MSAs) and find that wholesale funding was a strong and significant predictor of a sharper decline in overall mortgage credit at the MSA level.

Subject: Banking, Credit, Financial institutions, Housing prices, Loans, Money, Mortgages, National accounts, Personal income, Prices

Keywords: A bank, Bank characteristic, Bank-MSA characteristic, Credit, Credit supply, Crisis dummy, Dependent variable, Global, Housing prices, Liability structure, Liquidity, Loans, Matching, Mortgages, Mortgages, Personal income, Retail funding, Wholesale funding, WP, X crisis

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/155
Stock No:

WPIEA2012155
ISBN:

9781475504460
ISSN:

1018-5941

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