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Do Euro Area Banks Adjust Their Foreign Real Estate Backed Lending in a Low Interest Rate Environment?

Kirsten Schmidt, Lena Tonzer
SUERF Policy Brief, February 2025
Abstract

Banks have been operating in a low interest rate environment paired with booming housing markets. For the largest banks in the euro area and the period 2015-2022, we assess whether banks reallocate their foreign loan portfolio backed by real estate as a response to differences in local lending spreads across the home and destination country and conditional on reduced information frictions due to borrowing-country exposures. The main result is that the relative share of foreign real estate backed lending increases in case of return opportunities, and this sensitivity depends on local exposures towards the borrowing country. The result is driven by subsamples for which neither the home nor the borrowing country have implemented macroprudential regulation targeting real estate lending, or for which there is a misalignment in macroprudential policies. Nevertheless, we find limited evidence that the riskiness of real estate backed loans goes up during our sample period, and we discuss potential reasons for this result including the possibility of hidden losses.

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Economic Outlook

IWH Economic Outlook 2026 Slight Upturn on the Horizon, Structural Problems Remain December 11, 2025 As the year draws to a close, it remains uncertain whether the German economy…

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IWH EXplore

IWH EXplore Competitive Funding for Research Projects with External Involvement at IWH IWH EXplore gives scientists the opportunity to acquire supplemental funding, in addition to…

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Macroeconomic Reports

Macroeconomic Reports Local and global: IWH regularly provides current economic data – be it about the state of the East German economy, the macroeconomic development in Germany…

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East Germany

The Nasty Gap 30 years after unification: Why East Germany is still 20% poorer than the West Dossier In a nutshell The East German economic convergence process is hardly…

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Policy Output

Reports › CompNet’s flagship and special reports provide in-depth, data-driven analysis on productivity, competitiveness, and related economic trends, using the latest CompNet…

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Step by Step ‒ A Quarterly Evaluation of EU Commission's GDP Forecasts

Katja Heinisch
IWH Discussion Papers, No. 22, 2024
published in: Journal of Forecasting
Abstract

The European Commission’s growth forecasts play a crucial role in shaping policies and provide a benchmark for many (national) forecasters. The annual forecasts are built on quarterly estimates, which do not receive much attention and are hardly known. Therefore, this paper provides a comprehensive analysis of multi-period ahead quarterly GDP growth forecasts for the European Union (EU), euro area, and several EU member states with respect to first-release and current-release data. Forecast revisions and forecast errors are analyzed, and the results show that the forecasts are not systematically biased. However, GDP forecasts for several member states tend to be overestimated at short-time horizons. Furthermore, the final forecast revision in the current quarter is generally downward biased for almost all countries. Overall, the differences in mean forecast errors are minor when using real-time data or pseudo-real-time data and these differences do not significantly impact the overall assessment of the forecasts’ quality. Additionally, the forecast performance varies across countries, with smaller countries and Central and Eastern European countries (CEECs) experiencing larger forecast errors. The paper provides evidence that there is still potential for improvement in forecasting techniques both for nowcasts but also forecasts up to eight quarters ahead. In the latter case, the performance of the mean forecast tends to be superior for many countries.

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FAQ

Frequently Asked Questions Answers to the most frequently asked questions about doctoral studies at IWH. What are the IWH's main areas of research? Researchers at IWH are leading…

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6th CompNet Annual Conference

Innovation, firm size, productivity and imbalances in the age of de-globalization 6 th CompNet Annual Conference, June 29-30, 2017, European Commission, Brussels, Belgium As the…

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CompNet & ECB Annual Conference

CompNet & ECB Annual Conference On 22 September 2020, a short online event took place. Please find all material below to be downloaded from the online conference. The coronavirus…

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