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Leakages from macroprudential regulations: The case of household-specific tools and corporate credit

Author

Listed:
  • Bhargava, Apoorv
  • Górnicka, Lucyna
  • Xie, Peichu

Abstract

Policymakers use macroprudential regulations to lower risk-taking in the economy. We show that if those regulations target borrowers in specific sectors only, they can increase the riskiness of credit to unregulated borrowers. We construct country-level measures of the riskiness of corporate credit allocation based on firm-specific credit risk indicators and analyse their responses to unexpected changes in macroprudential regulations affecting credit to households only. We find that riskiness of corporate credit increases in a meaningful way following an unexpected tightening of household-specific regulations, but only during credit expansions. This evidence is consistent with cross-sectoral credit and risk substitution and with state-dependent effects of financial regulations. We find stronger effects for larger firms compared to small- and medium-sized enterprises, consistent with the use of personal real estate as loan collateral by smaller firms. Policymakers should consider the cross-sectoral leakages we document when deciding between broad-based and sector-specific macroprudential policy tools.

Suggested Citation

  • Bhargava, Apoorv & Górnicka, Lucyna & Xie, Peichu, 2025. "Leakages from macroprudential regulations: The case of household-specific tools and corporate credit," Economic Modelling, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:ecmode:v:153:y:2025:i:c:s0264999325003281
    DOI: 10.1016/j.econmod.2025.107333
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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