Credit Supply and the Price of Housing

Abstract

The bulk of capital provided to Dutch housing corporations is explicitly guaranteed by a bailout clause. Using a dataset with loans provided by the largest Dutch public sector bank (BNG Bank), we find substantial evidence that this bailout clause has reduced interest rates by about 72 basis points. The annual benefits of reduced interest costs outweigh the costs of default. We also find that the interest rates for guaranteed loans are insensitive to the financial position of corporations. We therefore surmise that the bank relied on the bailout clause. Finally, the bailout clause for corporations (which guarantees individual loans) and the one for municipalities (which entirely protects municipalities from defaulting) lead to a similar reduction in interest.

Credit Supply and the Housing Boom

“…First, the microeconometric evidence of Ambrose and Thibodeau (2004), Sufi (2009), Favara andImbs (2012) and Di Maggio and Our paper is also broadly related to the work of Gerali et al (2010) and Iacoviello (2014), who estimate large-scale dynamic stochastic general equilibrium models with several nominal and real frictions, including collateral constraints for households and entrepreneurs, and leverage restrictions for financial intermediaries. These papers, however, investigate the properties of business cycles, and do not focus on the recent boombust cycle.…”

The Long-Run Real Effects of Banking Crises: Firm-Level Investment Dynamics and the Role of Wage Rigidity

“…Besides providing little evidence on the long-run effects of credit market disruptions, the existing corporate finance literature also has little to say about how wage rigidity affects the response of 9 See Favara and Imbs (2015), Jordà, Schularick, and Taylor (2013), Jordà, Richter, Schularick, and Taylor (2017), and Mian, Sufi, and Verner (2017) for recent applications of local projection techniques in Finance.…”

Housing Bust, Bank Lending & Employment: Evidence from Multimarket Banks

“…Since the supply of credit impacts house prices and construction (Peek and Rosengren, 2000;Loutskina and Strahan, 2015;Favara and Imbs, 2015), a bank may be systematically located in weak real estate markets because it is responsible for them. For example, banks which depended more on wholesale funding may have cut lending, resulting in falling house prices and employment across their markets even though losses on real estate loans didn't cause the supply shock.…”