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Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Author/Editor: Stijn Claessens | Swati R. Ghosh | Roxana Mihet
Authorized for Distribution: August 19, 2014
Electronic Access: Free Full Text (PDF file size is 688KB)
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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.
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Series: Working Paper No. 14/155
Subject(s): Macroprudential policies and financial stability | Banking systems | Systemic risk | Risk management | Econometric models
    Published:   August 19, 2014        
    ISBN/ISSN:   9781498319546/1018-5941   Format:   Paper
    Stock No:   WPIEA2014155   Pages:   36
    Price:   US$18.00
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