TY - JOUR
T1 - Bank integration and co-movements across housing markets
AU - Milcheva, Stanimira
AU - Zhu, Bing
N1 - Publisher Copyright:
© 2015 Elsevier B.V.
PY - 2016/11/1
Y1 - 2016/11/1
N2 - This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal.
AB - This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal.
KW - Bank capital flows
KW - Bank integration
KW - Dynamic spatial panel model
KW - Global banking channel
KW - House prices
KW - Mortgage market development
UR - http://www.scopus.com/inward/record.url?scp=84939551368&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2015.07.002
DO - 10.1016/j.jbankfin.2015.07.002
M3 - Article
AN - SCOPUS:84939551368
SN - 0378-4266
VL - 72
SP - S148-S171
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
ER -