Professor Alan Ahearne:

It is difficult to say. There have been examples in which even a very large decline in property prices did not create an outright banking crisis. The example I gave was Hong Kong, where property prices in the late 1990s, at the time of the Asian financial crisis, fell by 50%, but they did not have a banking crisis. What happened there was that they had very low loan-to-value ratios, which protected them. The banks also had huge amounts of capital and they may well have been more exposed to residential rather than commercial property. So it is not automatic that if there is a property boom and bust the banks are all going to go bust. It depends on the extent of it: how bad is the boom and bust, what is the wider context and what happens to the economy. If the economy goes into recession, does it go into a depression? One has to take all of that into account and then see what the banks are like and what is their ability to withstand that bust in terms of capital. That is extremely complicated. One would have to have the details.