1. “Residential House Prices, Commercial Real Estate and Bank Failures”by
Gary S. Fissel, FDIC1
Gerald A. Hanweck, George Mason University
&
Anthony B. Sanders, George Mason University
January 4, 2019
N.B. The views in this paper are those of the authors and do not reflect the views of the FDIC. Please do not quote without permission from the authors.

2. Compare Great Recession & Thrift Banking Crises
Great Recession Banking Crisis  Larger Banks are involved with bank failure more so than any other period.
Bank Failure Comparison during Great Recession Crisis & Thrift Crisis

5. What is done in this paper?
Examination of the Great Recession Banking Crisis
Focus of Paper:
We want to examine effects of the large house price movements over the Great Recession period to explain bank failures.

6. Explanatory Factors:
Identify important explanatory factors to explain the bank failures:
Typical causal factors include:
Bank capitalization, RoA & Non-performing Assets
Loans for RE Construction & Land Development
Not typical explanatory factors include:
Regional Residential RE House Price Changes
Direct & Indirect effects on bank failures

7. U.S. Commercial Real Estate Annual Price Changes
Note: Prices are measured at end of quarter.
Source: St. Louis Fed., FRED

8. Balance Sheet Bank Construction & Land Development Loans

9. Source: Census Region HPI, FHFA

11. Balance Sheet Bank Residential Real Estate Loan Concentrations
Source: Call Reports, FFIEC

12. CONCLUSIONS
Residential RE Price Changes – explain higher & lower likelihoods of bank failures over the Great Recession period and after.
Census Regional HPI changes  certain ones are consistently significant over the failure period.
Commercial RE – consistently significant over period.
Larger Banks had higher likelihood of failure during the Great Recession.

13. Literature Review of Bank Failures during the Great Recession
Mayes et al. (2009)
Gorton & Metrick (2012) Securitized Mortgage Assets
DeYoung & Gorna (2013)
Cole & White (2012)  Paper uses traditional Call Report variables to
explain bank failures.
We use this general framework of this paper.
Ask a basic question: Didn’t the movements of the residential house prices have critical negative effects on banks’ health (i.e., cause bank failures) other than “securitized banking”?
Sun et al. (2018) finds diverse effects of residential house prices on bank failures.

14. Estimation Framework
Binomial Logistic Regression {DV = Failure (1) & Survive (0)}
Bank Failures: Actual Failures, OBA & Technical Failures.
Technical Failures satisfy the following equation:
Capitalt + Reservest – 0.5(Non-Performing Assetst + Non-Accrual Assetst) < 0
Estimation Equation:

15. TABLE 1 – Variable Definitions

16. Table 4: Logistic Regression 2009 Failures Marginal Effects Estimation

17. Thank You for your attention to this paper.