Finance and Economics Discussion Series (FEDS)
Housing Bust, Bank Lending and Employment: Evidence from Multimarket Banks
I use geographic variation in bank lending to study how bank real estate losses impacted the supply of credit and employment during the Great Recession. Banks exposed to distressed housing markets cut mortgage and small business lending relative to other banks in the same county. This lending contraction had real effects, as counties whose banks were exposed to adverse shocks in other markets suffered employment declines, especially in young ﬁrms. This ﬁnding is robust to instrumenting for bank exposure to housing shocks using shocks in distant markets, exposure based on historical lending, or exposure to markets with inelastic housing supply.
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Keywords: Bank lending, Employment, Financial crisis, Residential real estate
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