Friday, October 20, 2017 at 12:00pm to 1:30pm
Lewis Hall (RGL), 308
650 Childs Way, Los Angeles, CA 90089
USC Lusk Center for Real Estate Research Seminar
Cross-Border Residential Lending: Theory and Evidence from the European Sovereign Debt Crisis
University of Wisconsin - Madison
We examine bank strategies to rebalance residential mortgage portfolios toward other geographical regions in the context of the European sovereign debt crisis. For banks in Greece, Ireland, Cyprus, Italy, Portugal, and Spain (GICIPS), we find evidence of flight-to-quality if banks were undercapitalized and had high funding cost, and evidence of risky-lending if banks were undercapitalized but without funding problems. For banks in core safe European countries, we find evidence of flight-to-quality among banks with high capital ratios, and risky-lending among banks with low funding cost. We rationalize these empirical results with a general equilibrium model of cross-border mortgage lending.
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