Do Exposures to Sagging Real Estate, Subprime or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home?

We investigate how differential exposures by German banks to the US real estate market during the 2007 subprime crisis affect their corporate lending in Germany. We find that banks with an exposure to the US real estate sector and to conduits cut their lending to German firms by more following a decrease in US home prices than banks that do not have such exposure. Moreover, these banks then also shift their lending to industry–region combinations with lower insolvency ratios