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Exposure to Real Estate Losses: Evidence from the US Banks
Author:
Marcelo Pinheiro null

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Ms. Deniz O Igan
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https://orcid.org/0000-0002-9501-1807
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 079
Language:
English
Publication Date:
01 Apr 2009
DOI:
https://doi.org/10.5089/9781451872262.001
ISBN:
9781451872262
ISSN:
1018-5941
Pages:
33
Keywords:
WP; real estate; loan; delinquency rate; Residential and Commercial Real Estate; Delinquency; Distance to Default; mortgage interest rate; loan portfolio; credit growth; subprime mortgage; loan delinquency rate; loan product; loan composition; return on assets; loan-deposit ratio; Loans; Real estate prices; Mortgages; Bank credit; Personal income
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund