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Paper eres2005_352:
An Investigation of Regulatory Changes and Real Estate Credit in Episodes of Financial Instability

id eres2005_352
authors Wu, Cherie and Frederik Pretorius
year 2005
title An Investigation of Regulatory Changes and Real Estate Credit in Episodes of Financial Instability
source Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
summary The deregulation and internationalization of domestic banking industries in many countries since the 1970s led to significant episodes of financial instability in many domestic banking systems, including Sweden, Australia, the USA, and most recently, the Asian Financial Crisis of 1997-1998. These episodes have stimulated many researchers and policymakers alike to search for reasons for such episodes. One of the main issues pointed out by many is the problem of asset quality on banks' balance sheets. This paper goes one step further to examine the reason why banks take on excessive risks and the role of real estate plays in such behavior. Information asymmetry is seen as one important explanation for banks' over-reliance on real estate as collateral for many loans. As will be shown in the case studies, change in banks' lending behavior is often triggered by a series of deregulation or regulatory changes of financial systems that brings about intensified competition. This often leads to aggressive asset growth and often is accompanied by deteriorating credit criteria. By looking at the case studies of Sweden, Japan, Australia and Thailand, this paper explores the relationship between deregulation of financial intermediaries and the subsequent behavior exhibited by banks in these markets. In particular, we are interested in how banks' behavior lead to an expansion of credit to real estate as an asset class, and how these collective decisions destabilize banking systems will also be discussed.
series ERES:conference
type normal paper
discussion No discussions. Post discussion ...
ratings
session Session A8
last changed 2008/11/01 09:47
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