Search Results
Working Paper
Competition and Bank Fragility
Speech
Economic Fragility: Implications for Recovery from the Pandemic
President Rosengren’s comments were delivered as part of the Annual Regional and Community Bankers Conference, and were based on a speech he delivered on October 8, 2020 for the Marburg Memorial Lecture, Marquette University Economics Department.
Report
Effects of Financing Constraints on Maintenance Investments in Rent-Stabilized Apartments
This paper studies whether financing constraints adversely affect renters by reducing maintenance. Consistent with a sensitivity of maintenance to financial resources, housing code violations increased after a change in the law that effectively decreased cash flows available to maintain some rent stabilized buildings in New York City. The effect is most severe when financing constraints are present. Moreover, results of panel regressions using a dataset of 45 cities obtained with Freedom of Information Act (FOIA) requests are consistent with a hypothesis that buildings with higher LTV ratio ...
Recent Trends in Banks’ Commercial Real Estate Exposure
U.S. bank holding companies that have the largest exposure to commercial real estate share some common characteristics. Our blog post explains.
Working Paper
Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans
We study the role that recourse plays in the commercial real estate loan contracts of the largest U.S. banks. We find that recourse is valued by lenders and is treated as a substitute for conventional equity. At origination, recourse loans have rate spreads that are at least 20 basis points lower and loan-to-value ratios that are around 3 percentage points higher than non-recourse loans. Dynamically, recourse affects loan modification negotiations by providing additional bargaining power to the lender. Recourse loans were half as likely to receive accommodation during the COVID-19 pandemic, ...
Report
Extend-and-Pretend in the U.S. CRE Market
We show that banks “extended-and-pretended” their impaired CRE mortgages in the post-pandemic period to avoid writing off their capital, leading to credit misallocation and a buildup of financial fragility. We detect this behavior using loan-level supervisory data on maturity extensions, bank assessment of credit risk, and realized defaults for loans to property owners and REITs. Extend-and-pretend crowds out new credit provision, leading to a 4.8–5.3 percent drop in CRE mortgage origination since 2022:Q1 and fuels the amount of CRE mortgages maturing in the near term. As of 2023:Q4, ...
Journal Article
“Stress Testing” Banks on Commercial Real Estate
Recent research tests the effects of a large (hypothetical) drop in commercial real estate prices: Banks most affected would be small and the resulting noncompliance would apply to a small fraction of assets in the US banking system.
Working Paper
Intermediary Segmentation in the Commercial Real Estate Market
Banks, life insurers, and commercial mortgage-backed securities (CMBS) lenders originate the vast majority of U.S. commercial real estate (CRE) loans. While these lenders compete in the same market, they differ in how they are funded and regulated, and therefore specialize in loans with different characteristics. We harmonize loan-level data across the lenders and review how their CRE portfolios differ. We then exploit cross-sectional differences in loan portfolios to estimate a simple model of frictional substitution across lender types. The substitution patterns in the model match well the ...