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Book part
Publication date: 28 September 2020

Yuki Masujima

This chapter investigates a shock transmission path between a home country (a country where globalized banks’ headquarters are located) and a host country (Indonesia as…

Abstract

This chapter investigates a shock transmission path between a home country (a country where globalized banks’ headquarters are located) and a host country (Indonesia as the emerging market) through the lending channel of global banks’ local branches (i.e., the internal transfer channel). Using novel data of monthly individual foreign bank’s balance sheet in Indonesia, the author finds the evidence that shocks to a parent bank and a home economy are transmitted to a host economy through the foreign banks’ internal capital market. With the Indonesia banks’ capital injections and their difficulty in financing dollar funds without risk premiums since the 1998s crisis, the foreign banks’ dollar lending in Indonesia is a good showcase of internal capital markets. A change in a home stock market index and industrial production appears to have a negative effect on growth rates in foreign currency loans of foreign banks in the host market. On the other hand, high growth rates in the parent bank’s stock price in the home market lead to an increase in foreign banks’ US dollar lending in the host country. This effect does not appear in local currency lending because limited hedging instruments against foreign exchange risk results in immobility of bank capital in the local currency.

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Emerging Market Finance: New Challenges and Opportunities
Type: Book
ISBN: 978-1-83982-058-8

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Article
Publication date: 25 February 2021

Robert H. Scott III and Steven Bloom

This paper aims to examine the relationship between student loan debt and first-time home buying among college graduates aged 23 to 40 years old in the USA.

Abstract

Purpose

This paper aims to examine the relationship between student loan debt and first-time home buying among college graduates aged 23 to 40 years old in the USA.

Design/methodology/approach

The authors use the Federal Reserve’s 2019 Survey of Consumer Finances data on American households to present descriptive statistics and run logistic regressions that measure the effects of student loan debt on first-time home buying. The authors also present original survey data of mortgage lenders that provides an industry-level perspective.

Findings

The authors find that having student loan debt does not by itself prohibit first-time home buyers. On the contrary, having student loan debt increases the likelihood of homeownership by 15.1%. People with student loan debt, however, buy homes that are 39.2% less expensive and have 58% less home equity compared to first-time home buyers without student loans. In addition, it is found that the amount of student loan debt is important. People with student loan debt above the median amount among people with student loan debt ($35,000) are 27% less likely to be first-time home buyers.

Practical implications

This paper provides public policy analysts and other researchers a different perspective on the correlation between student loan debt and home buying. This study focuses narrowly on first-time home buyers who are college graduates between 23 and 40 years. Thus, capturing the youngest cohort of first-time home buyers and examine the primary factors that influence their home buying decisions.

Originality/value

First-time homebuyers are historically the largest segment of home buyers making them an important subcategory to study. The rise in student loan debt is posited to explain declining homeownership among younger people. The current literature on student loan debt and home buying often studies samples that are too heterogeneous resulting in mixed findings. This paper adds to the existing literature by filtering the sample to study the effects of student loan debt and first-time home buying among people with at least a college degree who are between 23 and 40 years.

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International Journal of Housing Markets and Analysis, vol. 15 no. 1
Type: Research Article
ISSN: 1753-8270

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Book part
Publication date: 5 February 2016

Neil Fligstein and Zawadi Rucks-Ahidiana

The 2007–2009 financial crisis initially appeared to have destroyed a huge amount of wealth in the United States. Housing prices dropped about 21% across the country and…

Abstract

The 2007–2009 financial crisis initially appeared to have destroyed a huge amount of wealth in the United States. Housing prices dropped about 21% across the country and as much as 50% in some places, and the stock market dropped by nearly 50% as well. This chapter examines how the financial crisis differentially affected households at different parts of the income and wealth distributions. Our results show that all households lost about the same percentage of their wealth in that period. But because households in the top 10% of the wealth distribution owned many different kinds of assets, their wealth soon recovered. The bottom 80% of the wealth distribution had more of their wealth tied up in housing. We show that financial distress, indexed by foreclosures, being behind in mortgage payments, and changes in house prices were particularly concentrated in households in the bottom 80% of the wealth distribution. These households lost a large part of their wealth and have not yet recovered. Households that were most deeply affected were those who entered the housing market late and took out subprime loans. African American and Hispanic households were particularly susceptible as they bought houses late in the price bubble often with subprime loans.

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A Gedenkschrift to Randy Hodson: Working with Dignity
Type: Book
ISBN: 978-1-78560-727-1

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Article
Publication date: 1 January 2014

Christopher Gan, Baiding Hu, Cindy Gao, Betty Kao and David A. Cohen

This paper seeks to investigate the impact of socioeconomic factors of homebuyers such as gender, age, marital status, education, economic status and race on home

Abstract

Purpose

This paper seeks to investigate the impact of socioeconomic factors of homebuyers such as gender, age, marital status, education, economic status and race on home ownership and loan decisions in urban China.

Design/methodology/approach

This paper employs logistic regression to investigate the socioeconomic factors affecting the consumers' house purchase decision in urban China and the factors affecting the housing loan application.

Findings

Using a structured questionnaire to collect relevant data from household residents (both homeowners and non-home owners) in Nanjing in 2010, the findings document that male respondents who are non-minorities and have higher levels of education are more likely to purchase a house. The results also show that race, educational attainment, size of household and credit card ownership are significantly related to rejection for a housing loan.

Research limitations/implications

The findings in this paper provide homebuyers with a better understanding of factors affecting the housing loans and their decision to purchase a house. Homebuyers can accurately assess their financial ability and improve the use of their credit to purchase a house. In addition, Chinese homebuyers should be encouraged to save since savings serve as a step in building their credit worthiness; therefore, their accessibility to housing loans can be improved and the rate of homeownership will be increased as well.

Originality/value

This research would benefit both lender and borrowers. The research findings provide banks with a better understanding of homebuyers' characteristics that influence their accessibilities to housing loans. Homeownership requires affordable housing financing. Banks should consider repackaging their home loan products to make them more attractive to those with limited means. Such products should focus on making loans more affordable in real terms. First-time homebuyers are almost always young and earn low incomes.

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Journal of Asia Business Studies, vol. 8 no. 1
Type: Research Article
ISSN: 1558-7894

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Book part
Publication date: 25 March 2010

Barrie A. Wigmore

Studies of Depression-era financial remediation have generally focused on federal deposit insurance and the provision of equity to banks by the Reconstruction Finance…

Abstract

Studies of Depression-era financial remediation have generally focused on federal deposit insurance and the provision of equity to banks by the Reconstruction Finance Corporation (RFC). This paper broadens the concept of financial remediation to include other programs – RFC lending, federal guarantees of farm and home mortgages, and the elimination of interest on demand deposits – and other intermediaries – savings and loans, mutual savings banks, and life insurance companies. The benefits of remediation or the amounts potentially at risk to the government in these programs are calculated annually and allocated to the various intermediaries. The slow remediation of real estate loans (two-thirds of these intermediaries' loans) needs further study with respect to the slow economic recovery. The paper compares Depression-era remediation with efforts during the 2008–2009 crisis. Today's remediation contrasts with the 1930s in its speed, magnitude relative to GDP or private sector nonfinancial debt, the share of remediation going to nonbanks, and emphasis on securities markets.

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Research in Economic History
Type: Book
ISBN: 978-1-84950-771-4

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Article
Publication date: 6 March 2017

Krishnan Dandapani, Edward R. Lawrence and Fernando M. Patterson

The organizational form of financial institutions is related to their level of risk, leverage, liquidity and capitalization. High level of risk and leverage and lower…

Abstract

Purpose

The organizational form of financial institutions is related to their level of risk, leverage, liquidity and capitalization. High level of risk and leverage and lower levels of liquidity and capitalization are considered to be the root causes of the 2008 financial crisis. The purpose of this paper is to investigate if banks affiliated to holding company structure contributed more to the root causes of crisis than unaffiliated banks.

Design/methodology/approach

The paper isolates the effect of holding company association by restricting the sample to one-bank holding companies and individual banks. A comparative analysis of independent and holding company-affiliated banks is performed. Univariate analysis and multivariate regressions are used to compare the risk, leverage, liquidity and capitalization of affiliated and independent banks.

Findings

The paper finds that holding company affiliation is linked to several root causes of the 2008 financial crisis. Specifically, holding company affiliation results in higher levels of home mortgage loans underwritten and underperforming, higher leverage, lower liquidity and lower capitalization for the subsidiary bank.

Practical implications

The paper demonstrates that affiliated banks use their higher leveraged positions to engage in riskier home mortgage lending, sacrificing both liquidity and capital adequacy. These findings can help policy makers to focus on the group of banks that are part of holding company affiliation and implement such policies and regulations so as to avoid any re-occurrence of financial crisis.

Originality/value

This paper is the first to link the structural differences in banks to the root causes of financial crisis and to isolate the effect of holding company affiliation through sample selection. The paper will be valued to other researchers who try to isolate the effect of holding company affiliation and those studying the causes of the financial crisis of 2008.

Details

Studies in Economics and Finance, vol. 34 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 6 November 2017

Donald Haurin and Stephanie Moulton

This paper links the literatures on the life-cycle hypothesis, homeownership, home equity and pensions. Empirically, the focus is on the EU and USA. The paper aims to…

Abstract

Purpose

This paper links the literatures on the life-cycle hypothesis, homeownership, home equity and pensions. Empirically, the focus is on the EU and USA. The paper aims to explore the extent that seniors extract their home equity and discuss the financial instruments available for equity extraction.

Design/methodology/approach

The study uses data from the EU and USA to determine homeownership rates, house values and mortgage debt. With these values, the amount of seniors’ home equity is measured for each country. The usage of home equity extraction methods is reported and factors limiting their use are identified.

Findings

Seniors’ home equity is a substantial share of their total wealth. Estimates for 2013 are that their home equity equals about €5tn in the USA and over €8tn in large EU countries. The authors find that only a small share of seniors extracts their home equity. While there are supply side constraints in many countries, the evidence suggests that the cause of low extraction rates is the lack of demand. Various reasons for the lack of demand are discussed.

Practical implications

The increasing share of seniors in most countries’ population suggests that there will be increasing pressure on public pension systems. One among many options to address this issue is to impose a wealth test for eligibility, where wealth includes home equity. This study suggests that although home equity is substantial for many seniors, they are reluctant to access the funds.

Originality/value

The paper highlights the importance of home equity in the EU and USA and the factors that affect the primary methods of extraction.

Details

Journal of European Real Estate Research, vol. 10 no. 3
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 2 January 2018

Rosylin Mohd Yusof, Farrell Hazsan Usman, Akhmad Affandi Mahfudz and Ahmad Suki Arif

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in…

Abstract

Purpose

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence.

Design/methodology/approach

The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing.

Findings

This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates.

Research limitations/implications

This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry.

Practical implications

The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest.

Social implications

Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study.

Originality/value

This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 1
Type: Research Article
ISSN: 1759-0817

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Book part
Publication date: 8 November 2010

John O’Keefe

Purpose – This chapter investigates the influence of bank loan underwriting practices on loan losses and identifies potential determinants of lending practices for five…

Abstract

Purpose – This chapter investigates the influence of bank loan underwriting practices on loan losses and identifies potential determinants of lending practices for five categories of loans: business, consumer, commercial real estate, home equity, and construction and land development loans.

Methodology/approach – Using data on the riskiness of lending practices obtained from the U.S. Federal Deposit Insurance Corporation (FDIC) bank examiner surveys from January 1996 to March 2009, I fit a two-step treatment effects model to measure the effects of underwriting practices on loan losses, controlling for the potential endogeneity of lending practices.

Findings – In the selection step, I find that for business loans, the likelihood that bank management will adopt low-risk lending practices increases with bank financial performance and management quality hierarchical complexity and decreases with market competition. Results for the selection of lending practices for consumer loans and three categories of real estate loans are similar to those found for business loans but show weaker statistical relationships to all explanatory variables. In the loss determination step, I find that lower (higher) risk underwriting practices are generally associated with lower (higher) gross loan charge-offs (as percentage of gross loans and leases) for five categories of loans: business, consumer, commercial real estate, home equity, and construction and land development loans.

Originality/value of chapter – This is the first study to model the determinants of loan underwriting practices with the practices being characterized in terms of their risk to the bank. In addition, this is the first study to consider the effects of the riskiness of lending practices on loan losses, controlling for the endogeneity of practices.

Details

International Banking in the New Era: Post-Crisis Challenges and Opportunities
Type: Book
ISBN: 978-1-84950-913-8

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Article
Publication date: 31 December 2015

Oonagh Anne McDonald

The purpose of this paper is to examine the ways in which the USA has sought to hold the leading banks to account for the financial crisis and to asses the validity of the…

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Abstract

Purpose

The purpose of this paper is to examine the ways in which the USA has sought to hold the leading banks to account for the financial crisis and to asses the validity of the methods used. This is the first of two articles which looks at the basis of the Complaints against the banks and the settlements which led to the imposition of large fines on the banks.

Design/methodology/approach

The paper first provides an account of the government housing policy from 1995 to 2008 and argues that the cases brought against the banks and then at the legal basis of the charges. The methodology consists of a careful examination of the documentary evidence and an analysis of the changes in the relevant laws used by the Department of Justice when bringing charges against the banks.

Findings

The paper concludes that both the basis of the cases against the banks and the purpose of large fines are open to question.

Research limitations/implications

Much of the information is available. However, as the major cases against the large banks did not go the court, and the basis of the fines is a settlement between the bank and the Department of Justice, each fine is supported by a relatively brief “Statement of the Facts”. The evidence amassed by subpoenas issued by the Department of Justice is not tested in court.

Practical implications

Much greater consideration must be given to more effective ways of holding banks and especially senior executives to account.

Social implications

The imposition of large fines does not satisfy the public desire to see that justice is done. Such fines imposed on the ban are not likely to change bank behaviour.

Originality/value

Its originality lies in setting out an account of government housing policy and its role in the run-up to the financial crisis. No one has carried out a careful analysis of the cases against the large banks brought by the Department of Justice and, in the second article, by the Federal Housing Finance Agency.

Details

Journal of Financial Crime, vol. 23 no. 1
Type: Research Article
ISSN: 1359-0790

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