We thank Elena Loutskina, John Driscoll, Ran Duchin, Atif Mian, Darius Palia, and participants at the Regulation of Systemic Risk Conference, the editors, and two anonymous referees for helpful comments. Aaron Game and Thomas Spiller provided excellent research assistance merging the Call Report data. Any remaining errors are our own. The views expressed are those of the authors and do not necessarily represent those of the Federal Reserve System or the Board of Governors.
The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending
Article first published online: 9 JUL 2013
© 2013 The Ohio State University No claim to original US government works
Journal of Money, Credit and Banking
Volume 45, Issue s1, pages 59–91, August 2013
How to Cite
CALEM, P., COVAS, F. and WU, J. (2013), The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending. Journal of Money, Credit and Banking, 45: 59–91. doi: 10.1111/jmcb.12037
- Issue published online: 9 JUL 2013
- Article first published online: 9 JUL 2013
- Manuscript Accepted: 12 FEB 2013
- Manuscript Received: 25 OCT 2011
- jumbo lending;
- capital requirements;
- financial crisis
This paper explores the consequences of the collapse of the private-label residential mortgage-backed securities market in 2007 on banks’ originations of jumbo mortgages. We show that jumbo lending declined by more at banks that were more dependent on this market and were less well capitalized. In contrast, banks that had little dependence on this market and were well capitalized increased jumbo originations. These findings highlight how dependence on the secondary market may cause amplification of financial shocks, and the potential value of capital requirements that are higher during periods of economic growth in mitigating the amplification effects.