IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v132y2024ics0264999324000130.html
   My bibliography  Save this article

Does macroprudential policy leak? Evidence from shadow bank lending in EU countries

Author

Listed:
  • Hodula, Martin
  • Ngo, Ngoc Anh

Abstract

Post the Global Financial Crisis, there has been a surge in the global use of macroprudential policy tools. Concerns have arisen due to the predominant targeting of traditional banks, potentially prompting activity reallocation towards shadow banking. This study scrutinizes the impact of macroprudential policy on shadow bank lending, using quarterly data from 23 European Union countries spanning 1999–2019. Employing a precise measure of non-bank financial intermediation, we find that macroprudential tightening consistently drives increased shadow bank lending. Particularly evident in low-capitalized banking sectors, this implies a strategic credit shift from banks to non-banks. Our results emphasize the need for a balanced regulatory framework for both institutions, illuminating the intricate relationship between macroprudential policies, capitalization levels, and credit dynamics. This insight informs the development of effective regulatory frameworks in the post-crisis financial sector.

Suggested Citation

  • Hodula, Martin & Ngo, Ngoc Anh, 2024. "Does macroprudential policy leak? Evidence from shadow bank lending in EU countries," Economic Modelling, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:ecmode:v:132:y:2024:i:c:s0264999324000130
    DOI: 10.1016/j.econmod.2024.106657
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999324000130
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2024.106657?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, 2013. "A Model of Shadow Banking," Journal of Finance, American Finance Association, vol. 68(4), pages 1331-1363, August.
    2. Akinci, Ozge & Olmstead-Rumsey, Jane, 2018. "How effective are macroprudential policies? An empirical investigation," Journal of Financial Intermediation, Elsevier, vol. 33(C), pages 33-57.
    3. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Sudden Stops and Phoenix Miracles in Emerging Markets," American Economic Review, American Economic Association, vol. 96(2), pages 405-410, May.
    4. Meuleman, Elien & Vander Vennet, Rudi, 2020. "Macroprudential policy and bank systemic risk," Journal of Financial Stability, Elsevier, vol. 47(C).
    5. Kaiji Chen & Jue Ren & Tao Zha, 2018. "The Nexus of Monetary Policy and Shadow Banking in China," American Economic Review, American Economic Association, vol. 108(12), pages 3891-3936, December.
    6. Sandri, Damiano & Bergant, Katharina & Grigoli, Francesco & Hansen, Niels-Jakob, 2020. "Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?," CEPR Discussion Papers 14948, C.E.P.R. Discussion Papers.
    7. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 153-185.
    8. Manthos D. Delis & Iftekhar Hasan & Pantelis Kazakis, 2014. "Bank Regulations and Income Inequality: Empirical Evidence," Review of Finance, European Finance Association, vol. 18(5), pages 1811-1846.
    9. David Aikman & Julia Giese & Sujit Kapadia & Michael McLeay, 2023. "Targeting Financial Stability: Macroprudential or Monetary Policy?," International Journal of Central Banking, International Journal of Central Banking, vol. 19(1), pages 159-242, March.
    10. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    11. Claudia M Buch & Linda S Goldberg, 2017. "Cross-Border Prudential Policy Spillovers: How Much? How Important? Evidence from the International Banking Research Network," International Journal of Central Banking, International Journal of Central Banking, vol. 13(2), pages 505-558, March.
    12. Buchak, Greg & Matvos, Gregor & Piskorski, Tomasz & Seru, Amit, 2018. "Fintech, regulatory arbitrage, and the rise of shadow banks," Journal of Financial Economics, Elsevier, vol. 130(3), pages 453-483.
    13. Fendoğlu, Salih, 2017. "Credit cycles and capital flows: Effectiveness of the macroprudential policy framework in emerging market economies," Journal of Banking & Finance, Elsevier, vol. 79(C), pages 110-128.
    14. Basto, R. & Gomes, S. & Lima, D., 2019. "Exploring the implications of different loan-to-value macroprudential policy designs," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 66-83.
    15. Bengtsson, Elias, 2020. "Macroprudential policy in the EU: A political economy perspective," Global Finance Journal, Elsevier, vol. 46(C).
    16. Hodula, Martin & Melecky, Ales & Machacek, Martin, 2020. "Off the radar: Factors behind the growth of shadow banking in Europe," Economic Systems, Elsevier, vol. 44(3).
    17. Javier Bianchi & Enrique G. Mendoza, 2018. "Optimal Time-Consistent Macroprudential Policy," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 588-634.
    18. Benbouzid, Nadia & Kumar, Abhishek & Mallick, Sushanta K. & Sousa, Ricardo M. & Stojanovic, Aleksandar, 2022. "Bank credit risk and macro-prudential policies: Role of counter-cyclical capital buffer," Journal of Financial Stability, Elsevier, vol. 63(C).
    19. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    20. Allen, Jason & Grieder, Timothy & Peterson, Brian & Roberts, Tom, 2020. "The impact of macroprudential housing finance tools in canada," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    21. Emmanuel Farhi & Jean Tirole, 2021. "Shadow Banking and the Four Pillars of Traditional Financial Intermediation [Securitization without Risk Transfer]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(6), pages 2622-2653.
    22. Lo Duca, Marco & Koban, Anne & Basten, Marisa & Bengtsson, Elias & Klaus, Benjamin & Kusmierczyk, Piotr & Lang, Jan Hannes & Detken, Carsten & Peltonen, Tuomas, 2017. "A new database for financial crises in European countries," ESRB Occasional Paper Series 13, European Systemic Risk Board.
    23. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2017. "Macroprudential policy, countercyclical bank capital buffers and credit supply: evidence from the spanish dynamic provisioning experiments," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 125(6), pages 2126-2177.
    24. Stijn Claessens & Jon Frost & Grant Turner & Feng Zhu, 2018. "Fintech credit markets around the world: size, drivers and policy issues," BIS Quarterly Review, Bank for International Settlements, September.
    25. Gebauer, Stefan & Mazelis, Falk, 2023. "Macroprudential regulation and leakage to the shadow banking sector," European Economic Review, Elsevier, vol. 154(C).
    26. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    27. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 102(5), pages 2301-2326.
    28. Irani, Rustom & Iyer, Rajkamal & Meisenzahl, Ralf & Peydró, José-Luis, 2021. "The rise of shadow banking: Evidence from capital regulation," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 34(5), pages 2181-2235.
    29. Reinhardt, Dennis & Sowerbutts, Rhiannon, 2015. "Regulatory arbitrage in action: evidence from banking flows and macroprudential policy," Bank of England working papers 546, Bank of England.
    30. Ely, Regis A. & Tabak, Benjamin M. & Teixeira, Anderson M., 2021. "The transmission mechanisms of macroprudential policies on bank risk," Economic Modelling, Elsevier, vol. 94(C), pages 598-630.
    31. De Jonghe, Olivier & Dewachter, Hans & Ongena, Steven, 2020. "Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions," Journal of Corporate Finance, Elsevier, vol. 60(C).
    32. Joel F. Houston & Chen Lin & Yue Ma, 2012. "Regulatory Arbitrage and International Bank Flows," Journal of Finance, American Finance Association, vol. 67(5), pages 1845-1895, October.
    33. Guillaume Plantin, 2015. "Shadow Banking and Bank Capital Regulation," The Review of Financial Studies, Society for Financial Studies, vol. 28(1), pages 146-175.
    34. Cerutti, Eugenio & Claessens, Stijn & Laeven, Luc, 2017. "The use and effectiveness of macroprudential policies: New evidence," Journal of Financial Stability, Elsevier, vol. 28(C), pages 203-224.
    35. J Begenau & T Landvoigt, 2022. "Financial Regulation in a Quantitative Model of the Modern Banking System," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(4), pages 1748-1784.
    36. Hodula, Martin & Libich, Jan, 2023. "Has monetary policy fueled the rise in shadow banking?," Economic Modelling, Elsevier, vol. 123(C).
    37. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    38. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
    39. Uwe Vollmer, 2022. "Monetary policy or macroprudential policies: What can tame the cycles?," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1510-1538, December.
    40. Ms. Juliana Dutra Araujo & Manasa Patnam & Ms. Adina Popescu & Mr. Fabian Valencia & Weijia Yao, 2020. "Effects of Macroprudential Policy: Evidence from Over 6,000 Estimates," IMF Working Papers 2020/067, International Monetary Fund.
    41. Stijn Claessens & Giulio Cornelli & Leonardo Gambacorta & Francesco Manaresi & Yasushi Shiinad, 2023. "Do Macroprudential Policies Affect Non-bank Financial Intermediation?," International Journal of Central Banking, International Journal of Central Banking, vol. 19(5), pages 185-236, December.
    42. Kim, Sooji & Plosser, Matthew C. & Santos, João A.C., 2018. "Macroprudential policy and the revolving door of risk: Lessons from leveraged lending guidance," Journal of Financial Intermediation, Elsevier, vol. 34(C), pages 17-31.
    43. Stijn Claessens & Daniela Klingebiel & Sergio L. Schmukler, 2002. "The Future of Stock Exchanges in Emerging Economies: Evolution and Prosepcts," Center for Financial Institutions Working Papers 02-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
    44. Masciandaro, Donato & Volpicella, Alessio, 2016. "Macro prudential governance and central banks: Facts and drivers," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 101-119.
    45. Mathias Drehmann, 2013. "Total credit as an early warning indicator for systemic banking crises," BIS Quarterly Review, Bank for International Settlements, June.
    46. Xiong, Wanting & Wang, Yougui, 2022. "A reformulation of the bank lending channel under multiple prudential regulations," Economic Modelling, Elsevier, vol. 114(C).
    47. Zohair Alam & Mr. Adrian Alter & Jesse Eiseman & Mr. Gaston Gelos & Mr. Heedon Kang & Mr. Machiko Narita & Erlend Nier & Naixi Wang, 2019. "Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database," IMF Working Papers 2019/066, International Monetary Fund.
    48. Eilat, Yair & Zinnes, Clifford, 2002. "The Shadow Economy in Transition Countries: Friend or Foe? A Policy Perspective," World Development, Elsevier, vol. 30(7), pages 1233-1254, July.
    49. Avdjiev, Stefan & Aysun, Uluc & Tseng, Michael C., 2022. "Regulatory arbitrage behavior of internationally active banks and global financial market conditions," Economic Modelling, Elsevier, vol. 112(C).
    50. Mr. Martin Cihak & Mr. Wim Fonteyne, 2009. "Five Years After: European Union Membership and Macro-Financial Stability in the New Member States," IMF Working Papers 2009/068, International Monetary Fund.
    51. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
    52. Cheng Hoon Lim & Mr. Ivo Krznar & Mr. Fabian Lipinsky & Mr. Akira Otani & Mr. Xiaoyong Wu, 2013. "The Macroprudential Framework: Policy Responsiveness and Institutional Arrangements," IMF Working Papers 2013/166, International Monetary Fund.
    53. Luck, Stephan & Schempp, Paul, 2014. "Banks, shadow banking, and fragility," Working Paper Series 1726, European Central Bank.
    54. Duca, John V., 2016. "How capital regulation and other factors drive the role of shadow banking in funding short-term business credit," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 10-24.
    55. Gabriele Galati & Richhild Moessner, 2018. "What Do We Know About the Effects of Macroprudential Policy?," Economica, London School of Economics and Political Science, vol. 85(340), pages 735-770, October.
    56. Ozgur, Gokcer, 2023. "The cross-border interconnectedness of shadow banking," Economic Modelling, Elsevier, vol. 126(C).
    57. repec:hal:spmain:info:hdl:2441/hqvfahst79ekpe0losvq1h46k is not listed on IDEAS
    58. Gadatsch, Niklas & Mann, Lukas & Schnabel, Isabel, 2018. "A new IV approach for estimating the efficacy of macroprudential measures," Economics Letters, Elsevier, vol. 168(C), pages 107-109.
    59. Mirzaei, Ali & Samet, Anis, 2022. "Effectiveness of macroprudential policies: Do stringent bank regulation and supervision matter?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 342-360.
    60. González, Francisco, 2022. "Macroprudential policies and bank competition: International bank-level evidence," Journal of Financial Stability, Elsevier, vol. 58(C).
    61. Deku, Solomon Y. & Kara, Alper & Marqués-Ibáñez, David, 2019. "Do reputable issuers provide better-quality securitizations?," Working Paper Series 2236, European Central Bank.
    62. Katharina Bergant & Francesco Grigoli & Niels‐Jakob Hansen & Damiano Sandri, 2024. "Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1405-1438, September.
    63. Mr. Ben Kelmanson & Koralai Kirabaeva & Leandro Medina & Borislava Mircheva & Jason Weiss, 2019. "Explaining the Shadow Economy in Europe: Size, Causes and Policy Options," IMF Working Papers 2019/278, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Madeira, Carlos, 2024. "The impact of macroprudential policies on industrial growth," Journal of International Money and Finance, Elsevier, vol. 145(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin Hodula & Ngoc Anh Ngo, 2021. "Does Macroprudential Policy Leak? Evidence from Non-Bank Credit Intermediation in EU Countries," Working Papers 2021/5, Czech National Bank.
    2. Norring, Anni, 2022. "Taming the tides of capital: Review of capital controls and macroprudential policy in emerging economies," BoF Economics Review 1/2022, Bank of Finland.
    3. Kristin J. Forbes, 2021. "The International Aspects of Macroprudential Policy," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 203-228, August.
    4. Jelisaveta Lazarevic & Tanja Kuzman & Milan Nedeljkovic, 2022. "Credit cycles and macroprudential policies in emerging market economies," Oeconomia Copernicana, Institute of Economic Research, vol. 13(3), pages 633-666, September.
    5. Malovaná, Simona & Hodula, Martin & Gric, Zuzana & Bajzík, Josef, 2023. "Macroprudential policy in central banks: Integrated or separate? Survey among academics and central bankers," Journal of Financial Stability, Elsevier, vol. 65(C).
    6. Martin Hodula & Ngoc Anh Ngo, 2022. "Finance, growth and (macro)prudential policy: European evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(2), pages 537-571, May.
    7. Kuzman, Tanja & Lazarevic, Jelisaveta & Nedeljkovic, Milan, 2022. "Capital flows liberalisation and macroprudential policies: The effects on credit cycles in emerging economies," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 602-619.
    8. Igan, Deniz & Mirzaei, Ali & Moore, Tomoe, 2023. "Does macroprudential policy alleviate the adverse impact of COVID-19 on the resilience of banks?," Journal of Banking & Finance, Elsevier, vol. 147(C).
    9. Beck, Roland & Berganza, Juan Carlos & Brüggemann, Axel & Cezar, Rafael & Eijking, Carlijn & Eller, Markus & Fuentes, Alberto & Alves, Joel Graça & Kreitz, Lilian & Marsilli, Clement & Moder, Isabella, 2023. "Recent advances in the literature on capital flow management," Occasional Paper Series 317, European Central Bank.
    10. policy, Work stream on macroprudential & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas, 2021. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.
    11. Kim, Soyoung & Mehrotra, Aaron, 2022. "Examining macroprudential policy and its macroeconomic effects – Some new evidence," Journal of International Money and Finance, Elsevier, vol. 128(C).
    12. Mokas, Dimitris & Giuliodori, Massimo, 2023. "Effects of LTV announcements in EU economies," Journal of International Money and Finance, Elsevier, vol. 133(C).
    13. Cecchetti, Stephen G. & Narita, Machiko & Rawat, Umang & Sahay, Ratna, 2023. "Addressing Spillovers from Prolonged U.S. Monetary Policy Easing," Journal of Financial Stability, Elsevier, vol. 64(C).
    14. Hodula, Martin & Libich, Jan, 2023. "Has monetary policy fueled the rise in shadow banking?," Economic Modelling, Elsevier, vol. 123(C).
    15. Coman, Andra & Lloyd, Simon P., 2022. "In the face of spillovers: Prudential policies in emerging economies," Journal of International Money and Finance, Elsevier, vol. 122(C).
    16. Katharina Bergant & Francesco Grigoli & Niels‐Jakob Hansen & Damiano Sandri, 2024. "Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1405-1438, September.
    17. Mircea Epure & Irina Mihai & Camelia Minoiu & José-Luis Peydró, 2024. "Global Financial Cycle, Household Credit, and Macroprudential Policies," Management Science, INFORMS, vol. 70(11), pages 8096-8115, November.
    18. Krenz, Johanna & Verma, Akhilesh K, 2023. "A leaky pipeline: Macroprudential policy shocks, non-bank financial intermediation and systemic risk in Europe," WiSo-HH Working Paper Series 79, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    19. policy, Work stream on macroprudential & Policy, Monetary & Stability, Financial & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas , 2023. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.
    20. Dimitris Mokas & Massimo Giuliodori, 2021. "Effects of LTV announcements in EU economies," Working Papers 704, DNB.

    More about this item

    Keywords

    European union; Instrumental variables; Macroprudential policy; Non-bank lending; Regulatory leakages;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:132:y:2024:i:c:s0264999324000130. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.