Macro-Prudential Policies to Mitigate Financial System Vulnerabilities
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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.
Series:
Working Paper No. 14/155
Subject:
Banking systems Central banks and their policies Econometric models Macroprudential policies and financial stability Risk management Systemic risk
English
Publication Date:
August 19, 2014
ISBN/ISSN:
9781498319546/1018-5941
Stock No:
WPIEA2014155
Format:
Paper
Pages:
36
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