Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/309135 
Year of Publication: 
2024
Series/Report no.: 
Staff Reports No. 1130
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We show that banks "extended-and-pretended" their impaired CRE mortgages in the post-pandemic period to avoid writing off their capital, leading to credit misallocation and a buildup of financial fragility. We detect this behavior using loan-level supervisory data on maturity extensions, bank assessment of credit risk, and realized defaults for loans to property owners and REITs. Extend-and-pretend crowds out new credit provision, leading to a 4.8-5.3 percent drop in CRE mortgage origination since 2022:Q1 and fuels the amount of CRE mortgages maturing in the near term. As of 2023:Q4, this "maturity wall" represents 27 percent of bank capital.
Subjects: 
commercial real estate
zombie lending
financial fragility
credit misallocation
JEL: 
G21
E51
R33
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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