Open AccessThe Increasing Trend in Commercial Real Estate Lending by Community Banks: The Role of Deliberate Risk-Taking, 2001-2017
Author(s) -
J. Reid Cummings,
John E. Martinez,
Michael T. Mills
Publication year - 2021
Publication title -
journal of economics and technology research
Language(s) - English
Resource type - Journals
eISSN - 2690-3709
pISSN - 2690-3695
DOI - 10.22158/jetr.v2n1p21
Subject(s) - real estate , recession , financial crisis , business , financial system , great recession , perspective (graphical) , finance , economics , macroeconomics , labour economics , artificial intelligence , computer science
Much attention focuses on the role of real estate lending by banks as a precipitating factor in past financial crises, and especially with respect to the 2007-2008 crisis. Over the past five years, U.S. banks have increased their commercial real estate lending dramatically, raising concern among regulators about the potential for another financial crisis. In this paper, we analyze post-recessionary trends to determine whether the same dangerous pre-recessionary risk-taking trends are emerging. Regulators devote most of their attention to the banking sector with little regard to the role played by its various subgroups. This may explain why there is little research analyzing the specific role of community banks in sparking a financial crisis. In this study, we present a disaggregated analysis that focuses on the potential risks of increased commercial real estate lending from a comparative perspective, examining community banks vis-a-vis larger banking institutions, paying particular attention to the role of deliberate bank risk-taking as a causal factor in increased community bank commercial real estate CRE lending since the Great Recession.