Real Estate Cycles and Bank Systemic Risks

We present an empirical model of systemic banking crises from an Australian perspective. Having no history of domestic banking crises in recent history, our quantitative model is estimated using an international panel data set spanning 18 countries and 30 years of observations. We evaluate in a hazard-modeling framework the statistical and economic significance of variables that have been suggested by prior theoretical and empirical studies to be antecedents of banking crises, such as: measures of real estate price exuberance, asset returns and the growth of leverage. In quantifying the exposure of the banking system to real estate pricing, we identify dynamics consistent with ‘boom-bust cycles' or bubble-like behaviour in the housing market. More generally, our findings yield measures of crisis risk exposure, but perhaps more importantly, guidance with respect to the variables that most influence crisis risk exposure