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Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Author

Listed:
  • Stijn Claessens
  • Swati R. Ghosh
  • Roxana Mihet

Abstract

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 2,800 banks in 48 countries over 2000–2010 respond to specific macro-prudential policies. Controlling for endogeneity, we find that measures aimed at borrowers––caps on debt-to-income and loan-to-value ratios––and at financial institutions––limits on credit growth and foreign currency lending––are effective in reducing asset growth. Countercyclical buffers are little effective through the cycle, and some measures are even counterproductive during downswings, serving to aggravate declines, consistent with the ex-ante nature of macro-prudential tools.

Suggested Citation

  • Stijn Claessens & Swati R. Ghosh & Roxana Mihet, 2014. "Macro-Prudential Policies to Mitigate Financial System Vulnerabilities," IMF Working Papers 14/155, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/155
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Banking systems; Central banks and their policies; Econometric models; Macroprudential policies and financial stability; Risk management; Systemic risk; Macropudential policies; Effectiveness; Banking vulnerabilities; banking; financial institutions; reserve requirements; banking system; financial cycles; Government Policy and Regulation; Government Policy and Regulation;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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