Local Banks, Credit Supply, and House Prices

Item Type Monograph (Working Paper)
Abstract

I study the effects of an increase in the supply of local mortgage credit on local house Prices and employment by exploiting a natural experiment from Switzerland. Losses in U.S. security holdings triggered a migration of dissatified retail customers from a large, universal bank (UBS) to homogenous local mortgage lenders in mid-2008. Mortgage lenders close to UBS branches experience larger inows of deposits, unrelated to their investment opportunities. Using variation in the geographic distance between UBS branches and local mortgage lenders as an instrument for deposit growth,I find that banks with an exogenous positive funding shock invest in strict accordance with their specialization (i.e. local mortgage lending). Consequently, house prices in neighborhoods around affected banks rise over 50% more than around unaffected banks. I also find an increase in the number of employees at small firms, reliant on real estate collateral, in these neighborhoods. My results show that local mortgage oriented banks affect house prices through the supply of credit and that bank specialization thereby plays an important role in the allocation of capital across sectors.

Authors Blickle, Kristian
Language English
Keywords credit supply, liquidity shock, house prices, local banking, employment
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 5 November 2017
Publisher SoF-HSG
Series Name School of Finance Working Paper Series
Number of Pages 70
Depositing User Marion Stadelhofer
Date Deposited 22 Mar 2018 09:45
Last Modified 22 Mar 2018 09:55
URI: https://www.alexandria.unisg.ch/publications/253942

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Blickle, Kristian: Local Banks, Credit Supply, and House Prices. School of Finance Working Paper Series, 2017,

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https://www.alexandria.unisg.ch/id/eprint/253942
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