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Credit supply responses to reserve requirement: loan-level evidence from macroprudential policy

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  • João Barata R B Barroso
  • Rodrigo Barbone Gonzalez
  • Bernardus F Nazar Van Doornik

Abstract

This paper estimates the impact of reserve requirements (RR) on credit supply in Brazil, exploring a large loan-level dataset. We use a difference-in-difference strategy, first in a long panel, then in a cross-section. In the first case, we estimate the average effect on credit supply of several changes in RR from 2008 to 2015 using a macroprudential policy index. In the second, we use the bank-specific regulatory change to estimate credit supply responses from (1) a countercyclical easing policy implemented to alleviate a credit crunch in the aftermath of the 2008 global crisis; and (2) from its related tightening. We find evidence of a lending channel where more liquid banks mitigate RR policy. Exploring the two phases of countercyclical policy, we find that the easing impacted the lending channel on average two times more than the tightening. Foreign and small banks mitigate these effects. Finally, banks are prone to lend less to riskier firms.

Suggested Citation

  • João Barata R B Barroso & Rodrigo Barbone Gonzalez & Bernardus F Nazar Van Doornik, 2017. "Credit supply responses to reserve requirement: loan-level evidence from macroprudential policy," BIS Working Papers 674, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:674
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    Cited by:

    1. 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.
    2. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2020. "Financial Spillovers and Macroprudential Policies," Open Economies Review, Springer, vol. 31(3), pages 529-563, July.
    3. Armstrong, Jed & Skilling, Hayden & Yao, Fang, 2019. "Loan-to-value ratio restrictions and house prices: Micro evidence from New Zealand," Journal of Housing Economics, Elsevier, vol. 44(C), pages 88-98.
    4. Agénor, Pierre-Richard & Alper, Koray & Pereira da Silva, Luiz, 2018. "External shocks, financial volatility and reserve requirements in an open economy," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 23-43.
    5. Glocker, Christian, 2019. "Do reserve requirements reduce the risk of bank failure?," MPRA Paper 95634, University Library of Munich, Germany.
    6. 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.
    7. Jed Armstrong & Hayden Skilling & Fang Yao, 2018. "Loan-to-Value Ratio Restrictions and House Prices," Reserve Bank of New Zealand Discussion Paper Series DP2018/05, Reserve Bank of New Zealand.
    8. Yavuz Arslan and Christian Upper, 2017. "Macroprudential frameworks: implementation and effectiveness," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential frameworks, implementation and relationship with other policies, volume 94, pages 25-47, Bank for International Settlements.
    9. Marina Tiunova, 2019. "Commodity and Financial Cycles in Resource-based Economies," Russian Journal of Money and Finance, Bank of Russia, vol. 78(3), pages 38-70, September.
    10. Cantú, Carlos & Gondo, Rocio & Martínez, Berenice, 2019. "Reserve requirements as a financial stability instrument," Working Papers 2019-014, Banco Central de Reserva del Perú.
    11. Juliana Dutra Araujo & Manasa Patnam & Adina Popescu & Fabian Valencia & Weijia Yao, 2020. "Effects of Macroprudential Policy: Evidence from Over 6,000 Estimates," IMF Working Papers 2020/067, International Monetary Fund.
    12. Thakor, Anjan V., 2018. "Post-crisis regulatory reform in banking: Address insolvency risk, not illiquidity!," Journal of Financial Stability, Elsevier, vol. 37(C), pages 107-111.
    13. Contreras, Alex & Gondo, Rocío & Pérez, Fernando & Oré, Erick, 2018. "Assessing the impact of credit de-dollarization measures in Peru," Working Papers 2018-009, Banco Central de Reserva del Perú.

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    More about this item

    Keywords

    reserve requirement; credit supply; capital ratio; liquidity ratio; macroprudential policy;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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

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