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Macro-prudential policies to mitigate financial system vulnerabilities

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  • Claessens, Stijn
  • Ghosh, Swati R.
  • Mihet, Roxana

Abstract

Macro-prudential policies aimed at mitigating systemic financial risks have become part of the policy toolkit in many emerging markets and some advanced countries. Their effectiveness and efficacy are not well-known, however. Using panel data regressions, we analyze how changes in balance sheets of some 2800 banks in 48 countries over 2000–2010 respond to specific policies. Controlling for endogeneity, we find that measures aimed at borrowers – caps on debt-to-income and loan-to-value ratios, and limits on credit growth and foreign currency lending – are effective in reducing leverage, asset and noncore to core liabilities growth during boom times. While countercyclical buffers (such as reserve requirements, limits on profit distribution, and dynamic provisioning) also help mitigate increases in bank leverage and assets, few policies help stop declines in adverse times, consistent with the ex-ante nature of macro-prudential tools.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 39 (2013)
Issue (Month): C ()
Pages: 153-185

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Handle: RePEc:eee:jimfin:v:39:y:2013:i:c:p:153-185

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Systemic risk; Macro-prudential policies; Effectiveness; Banking vulnerabilities;

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References

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  1. Samuel G. Hanson & Anil K. Kashyap & Jeremy C. Stein, 2011. "A Macroprudential Approach to Financial Regulation," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 3-28, Winter.
  2. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
  3. Jiménez, G. & Ongena, S. & Peydro, J.L. & Saurina, J., 2012. "Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments," Discussion Paper 2012-036, Tilburg University, Center for Economic Research.
  4. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2010. "Measuring systemic risk," Working Paper 1002, Federal Reserve Bank of Cleveland.
  5. Shekhar Aiyar & Charles W. Calomiris & Tomasz Wieladek, 2012. "Does Macro-Pru Leak? Evidence from a UK Policy Experiment," NBER Working Papers 17822, National Bureau of Economic Research, Inc.
  6. Jerome Vandenbussche & Ursula Vogel & Enrica Detragiache, 2012. "Macroprudential Policies and Housing Price," IMF Working Papers 12/303, International Monetary Fund.
  7. Fabian Valencia & Luc Laeven, 2012. "Systemic Banking Crises Database: An Update," IMF Working Papers 12/163, International Monetary Fund.
  8. Viral V. Acharya, 2010. "Measuring systemic risk," Proceedings 1140, Federal Reserve Bank of Chicago.
  9. International Monetary Fund, 2011. "Macroprudential Policy," IMF Working Papers 11/238, International Monetary Fund.
  10. Enrica Detragiache & Thierry Tressel & Poonam Gupta, 2008. "Foreign Banks in Poor Countries: Theory and Evidence," Journal of Finance, American Finance Association, vol. 63(5), pages 2123-2160, October.
  11. Deniz Igan & Heedon Kang, 2011. "Do Loan-To-Value and Debt-To-Income Limits Work? Evidence From Korea," IMF Working Papers 11/297, International Monetary Fund.
  12. Claudio Borio & William R. White, 2003. "Whither monetary and financial stability : the implications of evolving policy regimes," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-211.
  13. Gianni De Nicoló & Giovanni Favara & Lev Ratnovski, 2012. "Externalities and Macroprudential Policy," IMF Staff Discussion Notes 12/05, International Monetary Fund.
  14. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
  15. Pau Rabanal & Christopher W. Crowe & Giovanni Dell'Ariccia & Deniz Igan, 2011. "How to Deal with Real Estate Booms," IMF Working Papers 11/91, International Monetary Fund.
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Cited by:
  1. Labonne, Claire & Lecat, Rémy & Avouyi‑Dovi, Sanvi, 2014. "The housing market: the impact of macroprudential measures in France," Economics Papers from University Paris Dauphine 123456789/13289, Paris Dauphine University.
  2. Kenneth N Kuttner & Ilhyock Shim, 2013. "Can non-interest rate policies stabilise housing markets? Evidence from a panel of 57 economies," BIS Working Papers 433, Bank for International Settlements.
  3. Claudio Borio, 2014. "Monetary policy and financial stability: what role in prevention and recovery?," BIS Working Papers 440, Bank for International Settlements.
  4. Stijn Claessens & Laura E. Kodres, 2014. "The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable Questions," IMF Working Papers 14/46, International Monetary Fund.
  5. Caprio, Gerard, 2013. "Financial regulation after the crisis: how did we get here, and how do we get out?," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-49.
  6. Jeanne, Olivier, 2013. "Macroprudential policies in a global perspective," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-38.
  7. repec:wil:wileco:2013-20 is not listed on IDEAS
  8. de la Torre, Augusto & Ize, Alain, 2013. "The foundations of macroprudential regulation : a conceptual roadmap," Policy Research Working Paper Series 6575, The World Bank.

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