Commercial bank failures during The Great Recession: the real (estate) story

BIS Working Papers No 530
November 2015

The primary driver of commercial bank failures during the Great Recession was exposure to the real estate sector, not aggregate funding strains. The main "toxic" exposure was credit to non-household real estate borrowers, not traditional home mortgages or agency MBS. Private-label MBS contributed to the failure of large banks only. Failed banks skewed their portfolios towards product categories that performed poorly on aggregate. In addition, within each product category they held assets of lower quality than those held by survivor banks.

JEL classification: G21, G28, R33

Keywords: bank failures, Great Recession, real estate, mortgage-backed securities, credit lines, credit growth