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Cross‐Border Residential Lending: Theory and Evidence from the European Sovereign Debt Crisis
Author(s) -
Luque Jaime
Publication year - 2017
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12214
Subject(s) - sovereign debt , empirical evidence , context (archaeology) , european debt crisis , economics , sovereignty , debt , financial system , quality (philosophy) , financial crisis , debt crisis , capital (architecture) , business , international economics , monetary economics , finance , european union , macroeconomics , political science , european integration , politics , geography , law , philosophy , archaeology , epistemology
We examine bank strategies to rebalance residential mortgage portfolios toward other geographical regions in the context of the European sovereign debt crisis. For banks in Greece, Ireland, Cyprus, Italy, Portugal and Spain (GICIPS), we find evidence of flight‐to‐quality if banks were undercapitalized and had high funding cost, and evidence of risky‐lending if banks were undercapitalized but without funding problems. For banks in core safe European countries, we find evidence of flight‐to‐quality among banks with high capital ratios, and risky‐lending among banks with low funding cost. We rationalize these empirical results with a general equilibrium model of cross‐border mortgage lending.