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

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-issued 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, and within each category invested in assets of lower quality than survivor banks did. They expanded more rapidly into real estate during the pre-crisis period, but rapid growth alone cannot explain differences in asset performance.