Lucia Gibilaro

LIQUIDITY RISK EXPOSURE FOR SPECIALIZED AND UNSPECIALIZED REAL ESTATE BANKS: EVIDENCES FROM THE ITALIAN MARKET

Purpose – The purpose of this paper is to compare banks specialised on real estate lending with the overall market in order to the test if they are more or less exposed to liquidity risk.Design/methodology/approach – Following the approach proposed by the Basel Committee in order to evaluate the bank liquidity exposure, the paper compares the value of these measures between the real estate lending banks (REBs) and all other banks for the Italian market. A panel regression analysis is also performed in order to identify the main drivers of the liquidity risk measures for the two types of banks.Findings – The paper finds that no significant differences exist between REBs and the overall system if liquidity risk measures used by regulators in order to supervise the banking system are taken into account. Normally liquidity exposure by this type of bank is significantly affected by interbank market dynamics.Research limitations/implications – The paper considers only one market in order to test the fitness of ...Liquidity is the ability of a bank to collect money necessary for financing assets and meet obligations as they come due, without incurring unsustainable losses; the maturity transformation of short-term deposits into long-term loans makes banks inherently vulnerable to liquidity risk (Basel Committee on Banking Supervision, 2008). As banks specialized on real estate finance show an average high duration of the assets (Booth, 2002), liquidity risk is extremely relevant to ensure the stability of the financial intermediary. Under an asset and liabilities management approach (ALM), the paper is aimed to analyze the impact of the maturities structure on the liquidity position, discriminating between residential property specialized lenders and others. Yearly and half-yearly balance sheet data are collected from the ABI Banking Data database over the period 2000-2008. Data attain the individual balance sheet and all consolidated balance sheets are excluded from the analysis. In order to construct a sample that is representative of the Italian market, all banks available in each semester are selected independently from number of semesters for which the data are available The asset / liability structure analysis considers the banking book of each bank and computes, for each semester, measures of the liquidity risk exposure as: contractual maturity mismatch (Drago, 2003); concentration on funding (Matz and Neu, 2007); available unencumbered assets (Resti and Sironi, 2007). The sample is classified on the basis of the percentage of residential loan exposures on the total assets using a threshold the 40% per cent (Eisenbeis and Kwast, 1991). Total active banks are stratified in three groups according to the number of years in which they could be classified as specialized real estate banks (Blasko and Sinkey, 2006). A comparison of ALM measures for different subsamples is released in order to evaluate if the choice to specialize in the real estate sector affect the exposure at risk of the bank Results obtained will show that misalignment between asset and liability structure affects the liquidity position of the bank. The borroweris business sector and characteristics affect the bankis liquidity risk exposure. Banks that are structurally more exposed are those that are specialized in the real estate sectors. Empirical evidence provided demonstrates that the current debate on the need to define asset/liability maturity regulatory constraints could have relevant implication for the Italian banking sector, especially for the banks involved in the property market.

Liquidity risk exposure for specialised and unspecialised real estate banks: Evidence from the Italian market

Purpose – The purpose of this paper is to compare banks specialised on real estate lending with the overall market in order to the test if they are more or less exposed to liquidity risk.Design/methodology/approach – Following the approach proposed by the Basel Committee in order to evaluate the bank liquidity exposure, the paper compares the value of these measures between the real estate lending banks (REBs) and all other banks for the Italian market. A panel regression analysis is also performed in order to identify the main drivers of the liquidity risk measures for the two types of banks.Findings – The paper finds that no significant differences exist between REBs and the overall system if liquidity risk measures used by regulators in order to supervise the banking system are taken into account. Normally liquidity exposure by this type of bank is significantly affected by interbank market dynamics.Research limitations/implications – The paper considers only one market in order to test the fitness of ...Liquidity is the ability of a bank to collect money necessary for financing assets and meet obligations as they come due, without incurring unsustainable losses; the maturity transformation of short-term deposits into long-term loans makes banks inherently vulnerable to liquidity risk (Basel Committee on Banking Supervision, 2008). As banks specialized on real estate finance show an average high duration of the assets (Booth, 2002), liquidity risk is extremely relevant to ensure the stability of the financial intermediary. Under an asset and liabilities management approach (ALM), the paper is aimed to analyze the impact of the maturities structure on the liquidity position, discriminating between residential property specialized lenders and others. Yearly and half-yearly balance sheet data are collected from the ABI Banking Data database over the period 2000-2008. Data attain the individual balance sheet and all consolidated balance sheets are excluded from the analysis. In order to construct a sample that is representative of the Italian market, all banks available in each semester are selected independently from number of semesters for which the data are available The asset / liability structure analysis considers the banking book of each bank and computes, for each semester, measures of the liquidity risk exposure as: contractual maturity mismatch (Drago, 2003); concentration on funding (Matz and Neu, 2007); available unencumbered assets (Resti and Sironi, 2007). The sample is classified on the basis of the percentage of residential loan exposures on the total assets using a threshold the 40% per cent (Eisenbeis and Kwast, 1991). Total active banks are stratified in three groups according to the number of years in which they could be classified as specialized real estate banks (Blasko and Sinkey, 2006). A comparison of ALM measures for different subsamples is released in order to evaluate if the choice to specialize in the real estate sector affect the exposure at risk of the bank Results obtained will show that misalignment between asset and liability structure affects the liquidity position of the bank. The borroweris business sector and characteristics affect the bankis liquidity risk exposure. Banks that are structurally more exposed are those that are specialized in the real estate sectors. Empirical evidence provided demonstrates that the current debate on the need to define asset/liability maturity regulatory constraints could have relevant implication for the Italian banking sector, especially for the banks involved in the property market.

Property market liquidity and real estate recovery procedures efficiency: Evidences from the Italian economic cycle

Purpose – The minimization of financial losses and costs stemming from the credit recovery process is strictly connected with the time necessary to complete the procedure: in real estate credits, it depends on the liquidity and the efficiency of the enforcement procedures. The purpose of this paper is to test the relevance of the economic cycle in Italy on the determinants of the recovery process both at national and regional level.Design/methodology/approach – The first step is to identify the determinants of the real estate loans recovery process duration by the means of the review of the existing literature. The second step develops an empirical analysis to appraise the relevance of the economic cycle on the liquidity of the real estate market and efficiency of real estate enforcement proceedings. The relevance of the economic cycle is verified through, first, a correlation analysis of the selected indexes with the national and regional gross domestic product (GDP) and, second, a regression analysis of...

Are Home-Biased REITs worthwhile?

Due to the unique features of each real estate investment opportunity, real es- tate investment trust (REIT) asset managers gen- erally prefer to focus on domestic investments, for which they have more available information. While there is evidence of this trend in the U.S. market, there is little evidence in the rest of the world. In this paper, we examine a sample of geographically diversified REITs, focusing on the degree of home bias in different countries and compare the extra performance achieved by home- biased and non-home-biased REITs. The results show that home bias is more significant for certain countries and geographical areas and that home country portfolio concentration does not always imply higher average returns or a higher probabil- ity of return persistence.

Brownfield areas and housing value: Evidence from Milan

The existence of brownfield areas inside a city has negative effects on the real estate market due to the decrease of the demand for real estate assets nearby for both the prices and rents.The impact could be different on the basis of the different type of real estate investment considered and normally the impact is expected to be higher for residential assets. The paper evaluates the economic effect of abandoned real estate in the city of Milan for the time period 1993-2016 and shows that the city is characterised by a concentration of abandoned/dismissed assets in some city districts. Using standard hedonic models, the paper shows that the existence of brownfield areas nearby a real estate asset affects negatively its price and the negative contribution on price could be even higher than some district/building features.

Multiple banking relationships and exposure at default: Evidence from the Italian market

Purpose This paper aims to analyse the exposure at default (EAD) in the event of multiple banking relationships to understand the differences with respect to solo banking relationships and forecast the banks risk exposure. Design/methodology/approach The paper uses a unique database provided by the Italian public credit register representative of the full Italian market before the financial crisis. The analysis compares different EAD risk proxies for debtors with unique and multiple banking relationships to underline the main differences among the two groups. Findings Results show that EAD forecast could be improved considering the existence of exposures with other lenders and banks that consider such type of information can reduce the risk of underestimating the risk exposure of a debtor. Originality/value The paper is the first attempt to model the EAD on the basis of the existence of multiple lending exposures. Results demonstrate a different lender’s risk exposure for debtors with multiple credit risk exposure and show the usefulness of the information about the overall system exposure in evaluating the risk exposure related to this type of customers.

Institutional Investors and Home Biased REITs

REITs are frequently considered as an investment opportunity for Institutional investors due to the above the average returns offered with respect to other financial instruments. Due to the specific characteristic of the real estate market normally geographically specialized REITs (home biased) can benefit from an higher quality of the information available for selecting among investment opportunities and from a reduction of the cost of monitoring and servicing of assets owner. Home Biased REITs could be particularly appealing for such type of investors because the opportunity to add this type of asset to an investment portfolio already diversified can allow to optimize the risk-return of their investment strategy. The paper considers all the REITs included in the Standard and Poor’s Global REIT Index and evaluates the percentage of investment released by institutional investors and their change over time. Focusing the attention on REITs’ international real estate exposure, the paper shows that the geographical diversification matters for the investment decisions made by international investors and results are robust with respect to the time horizon considered and the proxy used for the concentration of the ownership.

Peer to Peer lending and the European real estate market: evidence from UK

During the last decade a lot of on-line platforms were developed in order to support the peer-to-peer lending (hereinafter) especially in the consumer loan sector. After the success of the new product, new market players decided to diversify their activity including also other sectors that can benefit from the P2P mechanism including the real estate market.With respect to the P2P concept, real estate offers the additional opportunity to reduce the overall risk assumed by investors through the value of the guarantee always related to the mortgage. Using data from one leading player specialized in real estate lending in UK (Landinvest) the paper will compare the characteristics of the loans offered though on-line platforms with respect to standard loans offered by the UK financial intermediaries. Results show that the peer-to-peer lending is more concentrated in some geographical areas or type of asset and also some of the contract features of P2P lending are not comparable with average of alternative financing solution available for financing comparable assets. Results support the hypothesis that the growth of the P2P lending is driven by the needs of potential debtors that are not addressed by the standard lending channel even if they can afford to pay above the average interest rates with respect to standard loans.

Home Bias in Asian REIT Portfolio Investment Strategies

Due to the unique features of each new available real estate investment, real estate investment trust (REIT) asset managers generally prefer to focus on domestic investments. While there is evidence of this trend in the US market, where out-of-state real estate asset buyers pay a premium due to the higher search and transaction costs, there is no evidence of the same home bias for Asian REITs. Examining a sample of geographically diversified REITs, this chapter focuses on a home bias that differentiates Asian REITs from other REITs and measures the extra performance achieved by both home-biased and non-home-biased Asian REITs. The results demonstrate that home bias is significant for Asian REITs and that home country portfolio concentration generally maximizes average returns and the probability of positive and abnormal performances.