Macro-Prudential Policies to Mitigate Financial System Vulnerabilities
IMF Working Papers, August 19, 2014
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Bibliographic details
- Authors: Stijn Claessens, Swart R. Ghosh, Roxana Mihet
- Published: August 19, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498319546.001
Summary and research design
- Macro-prudential policies aimed at mitigating systemic financial risks have been adopted in many emerging markets and some advanced countries.
- Study sample: changes in balance sheets of some 2,800 banks in 48 countries over 2000–2010.
- Methodology: panel data regressions with controls for endogeneity to analyze bank-level responses to specific macro-prudential policies.
Main findings on effectiveness
- Measures aimed at borrowers are effective in reducing asset growth:
- Caps on debt-to-income ratios.
- Caps on loan-to-value ratios.
- Measures aimed at financial institutions are effective in reducing asset growth:
- Limits on credit growth.
- Limits on foreign currency lending.
- Countercyclical buffers:
- Found to be little effective through the cycle.
- Some measures are counterproductive during downswings, aggravating declines, consistent with the ex-ante nature of macro-prudential tools.
Policy implications and interpretation
- Borrower-focused tools (debt-to-income and loan-to-value caps) can directly restrain asset expansion.
- Institution-focused limits (credit growth and foreign currency lending limits) can curb bank asset growth and associated vulnerabilities.
- Countercyclical buffers may not operate as intended across the cycle and can exacerbate downturns in some circumstances, highlighting the importance of design and timing of macro-prudential tools.
Publication and metadata
- Authors: Stijn Claessens, Swart R. Ghosh, Roxana Mihet
- Date: August 19, 2014
- Series: IMF Working Papers, Working Paper No. 2014/155
- Issue: 155
- Pages: 36
- DOI: https://doi.org/10.5089/9781498319546.001
- Stock No: WPIEA2014155
- ISBN: 9781498319546
- ISSN: 1018-5941
Subjects and keywords
- 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
IMF Working Paper No. 2014/155 (August 19, 2014).