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Macro-prudential policies to mitigate financial system vulnerabilities

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. 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.
  2. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
  3. Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2012. "Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments," Working Papers 628, Barcelona Graduate School of Economics.
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  7. 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.
  8. Jerome Vandenbussche & Ursula Vogel & Enrica Detragiache, 2012. "Macroprudential Policies and Housing Price; A New Database and Empirical Evidence for Central, Eastern, and Southeastern Europe," IMF Working Papers 12/303, International Monetary Fund.
  9. 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.
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  14. International Monetary Fund, 2011. "Macroprudential Policy; What Instruments and How to Use them? Lessons From Country Experiences," IMF Working Papers 11/238, International Monetary Fund.
  15. Aiyar, Shekhar & Calomiris , Charles W & Wieladek, Tomasz, 2012. "Does macropru leak? Evidence from a UK policy experiment," Bank of England working papers 445, Bank of England.
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