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Evaluating the impact of macroprudential policies on credit growth in Colombia

Author

Listed:
  • Esteban Gómez
  • Angélica Lizarazo
  • Juan Carlos Mendoza
  • Andrés Murcia Pabón

Abstract

Macroprudential tools have been used around the world to counter potential risks and imbalances in the financial sector. Colombia is a good example of a country that has employed a variety of regulatory measures to manage systemic risks in the economy. The purpose of this paper is to evaluate the effectiveness of two such policies with a view to increasing systemic resilience and curbing excesses in the credit supply. The first measure, the countercyclical reserve requirement, was implemented in 2007 to control excessive credit growth. The second was the dynamic provisioning scheme for commercial loans, which was designed to establish a countercyclical buffer through loan loss provision requirements. To perform this analysis, a rich dataset based on loan-by-loan information for Colombian banks during the 2006-09 period is used. A fixed effects panel model is estimated using the characteristics of debtors, banks and the macroeconomy as control variables. In addition, a difference in differences estimation is performed to evaluate the policies' impact. The findings suggest that the dynamic provisions and the countercyclical reserve requirement had a negative effect on credit growth, and that this effect varies according to bank-specific characteristics. Results also suggest that the aggregate macroprudential policy stance in Colombia has worked effectively to stabilize credit cycles, with some preliminary evidence also pointing towards significant effects in reducing bank risk-taking. Moreover, evidence is found that macroprudential policies have worked as a complement to monetary policy, as both have a moderating effect on credit growth when tightened.

Suggested Citation

  • Esteban Gómez & Angélica Lizarazo & Juan Carlos Mendoza & Andrés Murcia Pabón, 2017. "Evaluating the impact of macroprudential policies on credit growth in Colombia," BIS Working Papers 634, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:634
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    Cited by:

    1. Hernando Vargas, Pamela Cardozo and Andrés Murcia, 2017. "The macroprudential policy framework in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.),Macroprudential policy frameworks, implementation and relationships with other policies, volume 94, pages 103-128, Bank for International Settlements.
    2. Chantawit Tantasith & Nasha Ananchotikul & Chatlada Chotanakarn & Vorada Limjaroenrat & Runchana Pongsaparn, 2018. "The Impact of LTV policy on Bank Lending: Evidence from Disaggregate Housing Loan Data," PIER Discussion Papers 90, Puey Ungphakorn Institute for Economic Research, revised Jul 2018.
    3. Leonardo Gambacorta & Andrés Murcia, 2019. "The impact of macroprudential policies and their interaction with monetary policy: an empirical analysis using credit registry data," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Are post-crisis statistical initiatives completed?, volume 49, Bank for International Settlements.
    4. Contreras, Alex & Gondo, Rocío & Oré, Erick & Pérez, Fernando, 2019. "Evaluando el impacto de las medidas de desdolarización del crédito en el Perú," Working Papers 2019-005, Banco Central de Reserva del Perú.
    5. Gaffney, Edward & McCann, Fergal, 2019. "The cyclicality in SICR: mortgage modelling under IFRS 9," ESRB Working Paper Series 92, European Systemic Risk Board.
    6. Gaffney, Edward & McCann, Fergal, 2018. "The cyclicality in SICR: mortgage modelling under IFRS 9," Research Technical Papers 16/RT/18, Central Bank of Ireland.

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    Keywords

    Macroprudential policies; reserve requirements; credit growth; dynamic provisioning; credit registry data;

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