Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

By Stijn Claessens, Swart R. Ghosh, Roxana Mihet

August 19, 2014

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Stijn Claessens, Swart R. Ghosh, and Roxana Mihet. Macro-Prudential Policies to Mitigate Financial System Vulnerabilities, (USA: International Monetary Fund, 2014) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Balance of payments, Banking, Capital account, Credit, Emerging and frontier financial markets, Financial markets, Financial statements, Monetary policy, Money, Public financial management (PFM), Reserve requirements

Keywords: Adressing bank buffer, Asset growth, Balance sheets behavior, Bank, Bank asset, Bank control variables, Bank leverage, Banking vulnerabilities, Capital account, Country, Credit, Effectiveness, Emerging and frontier financial markets, Financial institution, Financial statements, Global, Lending spiral, Leveraged bank, Macro-prudential policy, Macropudential policies, Policy, Reserve requirements, Risk appetite, Systemic risk, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/155
Stock No:

WPIEA2014155
ISBN:

9781498319546
ISSN:

1018-5941

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