Betting on Commercial Real Estate: Competition in Deposit Markets
We show that community banks operating in competitive deposit markets increase their exposure to commercial real estate. Facing rising funding costs and higher beta deposits, these banks shift toward higher-yield and lower duration assets to preserve profit margins and duration match. We test this hypothesis using an exogenous increase in competition from credit unions following a policy change. As certain credit unions begin competing with regional and community banks, branches increase their deposit rates to stay competitive. The banks respond by expanding mortgage origination, both in the number of loans and their total value.
Networked Digital Library of Theses and Dissertations