Cross-border Banking and the Circumvention of Macroprudential and Capital Control Measures
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Summary:
We analyze the joint impact of macroprudential and capital control measures on cross-border banking flows, while controlling for multidimensional aspects in lender-and-borrower-relationships (e.g., distance, cultural proximity, microprudential regulations). We uncover interesting spillover effects from both types of measures when applied either by lender or borrowing countries, with many of them most likely associated with circumvention or arbitrage incentives. While lender countries’ macroprudential policies reduce direct cross-border banking outflows, they are associated with larger outflows through local affiliates. Direct cross-border inflows are higher in borrower countries with more usage of macroprudential policies, and are linked to circumvention motives. In the case of capital controls, most spillovers seem to be present through local affiliates. We do not find evidence to support the idea that additional capital inflow controls could interact with macro-prudential policies to mitigate cross-border spillovers.
Series:
Working Paper No. 2018/217
Subject:
Balance of payments Bank credit Banking Capital controls Cross-border banking Financial sector policy and analysis Financial services Macroprudential policy Macroprudential policy instruments Money
English
Publication Date:
September 28, 2018
ISBN/ISSN:
9781484378328/1018-5941
Stock No:
WPIEA2018217
Pages:
46
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