Credit Crises by Bruce G. Stevenson

Author:Bruce G. Stevenson
Language: eng
Format: epub
Publisher: Gatekeeper Press

Figure 8-3 Percent of U.S. Commercial Banks Easing Underwriting Standards on Commercial Real Estate Loans, Office of the Comptroller of the Currency Survey, 1996 to 2016

(Source: Office of the Comptroller of the Currency)

The profile of tightened underwriting standards follows an inverse pattern (Figure 8-4). Banks tightened underwriting on CRE loans from 1999 to 2002, 2003 to 2004, and, importantly, there was a long period of tightening in the mortgage crisis beginning in 2007 and ending in 2013. Banks tighten CRE underwriting standards during CRE credit crises.

The results of the OCC Annual Survey strongly support the ECH in CRE for two reasons. First, there are clear cycles of easing and tightening CRE underwriting standards over time, as predicted by the ECH. Second, the periods of tightening are strongly associated with credit crises in CRE while the periods of loosened underwriting standards occur in markets characterized by high liquidity and excess capital.

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