BANK REGULATORY AGREEMENTS AND REAL-ESTATE LENDING

Recent studies have found that banks with low capital ratios have sign ificantly decreased their lending to the real estate sector. This corr elation between real estate lending and bank capital could be the resu lt of voluntary decisions by banks to recapitalize, or it could be the result of direct actions taken by bank regulators. We find that banks with low capital ratios reduce their real estate lending substantiall y more after formal regulatory actions have been initiated by regulato rs. Furthermore, this reduction in lending is particularly large for t he categories of real estate borrowers most likely to be bank dependen t.