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Commercial bank failures during the great recession: the real (estate) story

The author asks whether exposure to real estate was one of the precipitating factors in the wave of commercial bank failures after the financial crisis. He shows that failed banks entered the crisis more exposed to non-household real estate products than survivor banks did, indicating that non-core exposures were the main drivers of bank failures during the crisis – neither traditional home mortgages nor agency MBS mattered for failures.

BIS working paper No 530
23 November 2015
Source: Bank for International Settlements

Adonis Antoniades, BIS

>  Commercial bank failures during the great recession


The primary driver of commercial bank failures during the Great Recession was exposure to the real estate sector, not aggregate funding strains. The main toxic” exposure was credit to non-household real estate borrowers, not traditional home mortgages or agency MBS. Private-label MBS contributed to the failure of large banks only. Failed banks skewed their portfolios towards product categories that performed poorly on aggregate. In addition, within each product category they held assets of lower quality than those held by survivor banks.