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Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements

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  • Dassatti Camors, Cecilia
  • Peydró, José-Luis
  • R.-Tous, Francesc
  • Vicente, Sergio

Abstract

We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital inflows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies

Suggested Citation

  • Dassatti Camors, Cecilia & Peydró, José-Luis & R.-Tous, Francesc & Vicente, Sergio, 2019. "Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements," EconStor Preprints 216795, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:esprep:216795
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    Cited by:

    1. Blanco Barroso, Joao & Barbone Gonzalez, Rodrigo & Peydró, José-Luis & Nazar van Doornik, Bernardus, 2019. "Countercyclical Liquidity Policy and Credit Cycles: Evidence from Macroprudential and Monetary Policy in Brazil," EconStor Preprints 216792, ZBW - Leibniz Information Centre for Economics.
    2. Mr. Fabian Valencia & Juliana Dutra Araujo & Ms. Adina Popescu & Manasa Patnam & Weijia Yao, 2020. "Effects of Macroprudential Policy: Evidence from Over 6,000 Estimates," IMF Working Papers 2020/067, International Monetary Fund.
    3. Calem, Paul & Correa, Ricardo & Lee, Seung Jung, 2020. "Prudential policies and their impact on credit in the United States," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    4. 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.
    5. Paola D'Orazio & Lilit Popoyan, 2020. "Taking up the climate change challenge: a new perspective on central banking," LEM Papers Series 2020/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Kim, Sooji & Plosser, Matthew C. & Santos, João A.C., 2018. "Macroprudential policy and the revolving door of risk: Lessons from leveraged lending guidance," Journal of Financial Intermediation, Elsevier, vol. 34(C), pages 17-31.
    7. Becker, Chris & Ossandon Busch, Matias & Tonzer, Lena, 2020. "Macroprudential policy and intra-group dynamics: The effects of reserve requirements in Brazil," IWH Discussion Papers 21/2017, Halle Institute for Economic Research (IWH).
    8. 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.
    9. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 153-185.
    10. Arrieta, Johar & Florián, David & López, Kristian & Morales, Valeria, 2020. "Policies for Transactional De-Dollarization: A Laboratory Study," Working Papers 2020-011, Banco Central de Reserva del Perú.
    11. Gómez, Esteban & Murcia, Andrés & Lizarazo, Angélica & Mendoza, Juan Carlos, 2020. "Evaluating the impact of macroprudential policies on credit growth in Colombia," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    12. Horacio Aguirre & Gastón Repetto, 2018. "Capital and Currency-Based Macroprudential Policies: An Evaluation Using Credit Registry Data," BCRA Working Paper Series 201877, Central Bank of Argentina, Economic Research Department.
    13. Kang, Qiaoling & Wu, Ji & Chen, Minghua & Jeon, Bang Nam, 2021. "Do macroprudential policies affect the bank financing of firms in China? Evidence from a quantile regression approach," Journal of International Money and Finance, Elsevier, vol. 115(C).
    14. Jérôme Vandenbussche & Piyabha Kongsamut & Dilyana Dimova, 2018. "Macroprudential Policy Effectiveness: Lessons from Southeastern Europe," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(9), pages 60-102, May.
    15. Stijn Claessens, 2015. "An Overview of Macroprudential Policy Tools," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 397-422, December.
    16. Bergant, Katharina & Grigoli, Francesco & Hansen, Niels-Jakob & Sandri, Damiano, 2020. "Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?," CEPR Discussion Papers 14948, C.E.P.R. Discussion Papers.
    17. Glocker, C., 2021. "Reserve requirements and financial stability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    18. Giovanni Dell'Ariccia & Karl Habermeier & Vikram Haksar & Tommaso Mancini-Griffoli, 2017. "Monetary Policy and Financial Stability," RBA Annual Conference Volume (Discontinued), in: Jonathan Hambur & John Simon (ed.),Monetary Policy and Financial Stability in a World of Low Interest Rates, Reserve Bank of Australia.
    19. Glocker, Christian, 2019. "Do reserve requirements reduce the risk of bank failure?," MPRA Paper 95634, University Library of Munich, Germany.
    20. Horacio A Aguirre & Gastón Repetto, 2017. "Capital and currency-based macroprudential policies: an evaluation using credit registry data," BIS Working Papers 672, Bank for International Settlements.
    21. Christopher Curfman & John Kandrac, 2019. "The costs and benefits of liquidity regulations: Lessons from an idle monetary policy tool," Finance and Economics Discussion Series 2019-041, Board of Governors of the Federal Reserve System (U.S.).
    22. Scalco, Paulo R. & Tabak, Benjamin M. & Teixeira, Anderson M., 2021. "Prudential measures and their adverse effects on bank competition: The case of Brazil," Economic Modelling, Elsevier, vol. 100(C).

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    More about this item

    Keywords

    macroprudential policy; reserve requirements;

    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
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • 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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