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| Commercial Bank Exposure and Sensitivity
to the Real Estate Market Author: Marcus T. Allen, Jeff Madura, and Kenneth J. Wiant Start Page: 129 Abstract: In this study, we
assess the balance sheet exposure of commercial banks to the real estate market, and
develop a hypothesis on the potential systematic effects of real estate conditions across
banks. By applying a seemingly unrelated regression (SUR) model to bank portfolios, we
test for the relation between bank values and a real estate market proxy after controlling
for general market and interest-rate conditions. We find a positive relationship between
monthly bank returns and the real estate index, even after accounting for general market
and interest-rate movements. The sensitivity of bank values to the real estate market has
increased over time, and the bank-specific sensitivity coefficient is positively related
to the bank's balance sheet exposure to real estate. |
