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In this paper, we ask about the capacity of macroprudential policies to reduce the procyclical impact of capital ratio on bank lending. We focus on aggregated macroprudential policy measures and on individual instruments and test whether their effect on the association between lending and capital depends on bank size. Applying the GMM 2-step Blunde...
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Context 1
... results in Table 4 consider individual macroprudential policy instruments one- by-one. We find that of borrower based instruments, only LTV-caps and DTI ratios weaken the effect of capital ratio on lending. ...Context 2
... we test the sensitivity of our results to change in the number of large and medium banks, by reducing the number of large and medium banks to make it compar- able with the number of small banks. To make the presentation of results more readable, we include this table in the appendix (Table A4). In this test, we assume that large banks are those with 15% of highest assets in particular countries. ...Context 3
... group of banks with medium assets are those with assets between 4th and 6th deciles. Specifications in Table A4 show that the implications presented in Table 3 in columns 4-6 (large banks) and 7-9 (medium banks) still hold. The Hansen OIR test p-value and m2 test are still correct in such subsamples. ...Similar publications
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Citations
... Increased resilience of the banking sector implies that banks are able to absorb losses which are of greater consequences arising from their ability to accumulate higher capitals or have access to better funding. Whichever case, this will ultimately reduce the tendency to experience a costly disruption in the supply of credit (Olszak, Roszkowska & Kowalska, 2019). The Central Bank of Nigeria also pays attention to the macro-prudential regulations under the financial stability reference unit. ...
This study empirically examined the tendency of macro-prudential policy in reducing the pro-cyclicality between Nigeria banks’ capital and bank loans during the post global financial crisis. The study employed the ARDL Model in estimating the model specified. The study found that macro-prudential policies help in reducing the procyclicality between bank loans and the extent of capital available for banks. And this is found to be less effective during the crisis than when the financial industry is not in crisis. Also, in the short run, capital and bank loans are countercyclical in nature and however this is reversed in the long run. The policy implication of this study is that the regulatory authority’s macro-prudential policy is effective in reducing the procyclicality between banks loans and capital adequacy of banks. Also, short term crisis does not deter banks from issuing out loans, however, in the long run, loans are greatly affected by the crisis within the system. There is a need for policymakers and the regulatory authority to focus attention on regulatory capital framework so that macro-prudential policies will have a greater impact in reducing the credit growth procyclicality and strengthen their macroprudential supervision measures especially during the period of crisis.
... (accessed on 23.05.2019). 5 Basel Committee on Banking Supervision. A framework for dealing with domestic systemically important banks, 2012. ...
... Olszak, Roszkowska & Kowalska [5] support the view that macroprudential policy has the potential to curb the procyclical impact of bank capital on lending and therefore, the introduction of more restrictive international capital standards included in Basel III and of macroprudential policies in general are fully justified. ...
The analysis of Basel III main provisions shows that within the macroprudential policy, increasing the financial stability of the banking sector is achieved by growing the capital of banks and creating new tools to solve short-term liquidity problems. The proposed measures seem well developed, except one fact — the quantitative values of the regulatory requirements for growing the bank capital are insufficient to achieve the macroprudential policy objectives. This study aims to develop analytical tools allowing to form quantitative objectives of the macroprudential policy and to deliver them by streamlining the capital requirements of banks. The methods of comparative and GAP analyses were used in the study. The empirical analysis was performed with the data on the Russian stock index IMOEX dynamics, the data from the reports by the Bank of Russia and financial reports of systemically important Russian banks. According to the study results, a quantitative strategic objective of the macroprudential policy in the Russian Federation was determined, a gradual increase in the capital adequacy ratio of Russian banks to 40% was proposed, a calendar plan was developed to achieve the strategic objective stagewise in 10 years, and banks are realistic in achieving this objective. As a regulatory instrument to grow the capital adequacy of banks according to the target level, it is proposed to use an additional regulatory capital requirement in the form of a reserve buffer of a dynamic and adaptive nature. The empirical analysis of the possibilities and consequences of a new regulatory instrument application proved the expediency of its introduction to improve the effectiveness of the macroprudential policy in the Russian Federation.
In this paper, we investigate the impact of macroprudential policy measures (bundled together into a macroprudential policy index, MPI) on the non-financial corporate sector credit and household credit growth using a one-step system GMM empirical research method. The goal of our paper is to test whether contractionary macroprudential policy stymies credit growth rate and whether expansionary macroprudential policy spurs credit growth rate in selected Euro Area economies (Austria, Belgium, Finland, Germany, Ireland, Italy, Netherlands, Slovenia, and Spain) over the period 2008Q4–2018Q4. We test two hypotheses: H1: The tightening of macroprudential policy measures reduces the non-financial corporate sector credit growth rate, and H2: The tightening of macroprudential policy measures reduces the growth rate of household credit. Based on our empirical results, we can confirm the first hypothesis. In contrast, the second hypothesis can be neither confirmed nor rejected since the explanatory variable of interest (MPI) is statistically insignificant in the second model.
This chapter reviews the new challenges of monetary policy in a context where inflation control is no longer the sole objective of central banks and where the interest rate instrument has proven to be inadequate to the liquidity trap situation following the 2008 crisis. We describe the new avenues that have emerged in the debates between macroeconomists: Fischerian approaches to the interest rate suggesting a positive correlation between the level of interest rates and the rate of inflation, unconventional monetary policies, and modern monetary theory (MMT). We also discuss the conflicts of objectives that may arise if central banks are assigned, in addition to controlling inflation, missions aimed at stabilizing the financial cycle, fighting inequality, and promoting the financing of the ecological transition.
The paper studies the effects on credit creation of macroprudential policies before and during the COVID-19 crisis in a large sample of countries for the period of 2015-2020. The study includes a set of COVID-19 variables to approximate the effects of the pandemic. We generally find a negative impact of macroprudential policies on credit growth. The usage of macroprudential policies in advanced and emerging economies had a positive effect on the safety and soundness of financial systems during the COVID-19 crisis. We also find an important role of COVID-19 measures, particularly, the partial lockdown had a positive effect on credit growth in advanced economies.
This paper aims to determine the role of the expected credit loss approach as defined in IFRS 9
in the effects of capital ratio on loans growth in publicly traded banks in Poland. To resolve this
problem, we apply semi-annual data of individual banks in 2012–2018. Using several estimation
techniques, we find that in the period of implementation of the expected credit loss approach, the
links between loans growth and the capital ratio were enhanced. In particular, lending growth is
more sensitive to levels of the capital ratio. These results are important with respect to the goal of
bank financial stability and have implications for the conduct of macroprudential policy.
This paper is a contribution to the body of research examining the impact of macroprudential policy instruments on financial stability. The following hypothesis was tested (H1): Macroprudential policy instruments (household borrowing costs; interbank loans as a percentage of total loans; loan to deposit ratio; leverage ratio; and solvency ratio) enhance financial stability, as measured by credit growth, in four southern European economies (Greece, Italy, Portugal and Spain) from Q4 2010 to Q4 2018. The empirical results of this study suggest that, of the investigated macroprudential policy instruments, household borrowing costs, interbank loans as a percentage of total loans and loan to deposit ratio exhibit the predicted impact on credit growth rate. Leverage ratio and solvency ratio do not exhibit the expected impact on the response variable. Moreover, only three out of the five explanatory variables are statistically significant in the model. Consequently, it is not possible to confirm or reject the hypothesis based on the available data and results.
The aim of this paper is to examine the impact of selected macroprudential policy instruments on financial stability. We focus on six euro area economies (Belgium, Cyprus, Germany, Spain, Ireland and the Netherlands) over sixteen quarters (from 2015 Q1 to 2018 Q4) by using the research method of panel econometrics. The following three banking sector aggregate balance sheet variables exhibit the expected impact on credit growth and cyclical fluctuations of the economy: common equity tier one ratio, coverage ratio, and interconnectedness ratio. Moreover, common equity tier one ratio, loan-to-deposit ratio, and leverage ratio exhibit the expected impact on house price growth. Based on our empirical findings, a case can be made for the usage of carefully crafted macroprudential policy instruments that target selected financial and macroeconomic variables with the ultimate goal of attaining the stability of the financial system as a whole.
The financial crisis from 2008 and the following Eurozone crisis from 2012 created an incentive to establish a system of financial supervision at the European Union (“EU”) level, due to the fact that the policy tool commonly used turned out to be ineffective. With regards to banking
supervision, the package of legislations: “CRR/CRD” and “BRRD” has been adopted as a response to financial system shortcomings, in order to make it more resilient and harmonised. One of the challenges was to take control of the so-called: “too big to fail” financial institutions, therefore next to macroprudential supervision, microprudential policy pools were
introduced. This constituted the phenomena of the shift from regulationbased supervision to risk-based supervision with the aim of reducing the systemic risk in each and every EU Member State and, in turn, prevent possible future crises. In this paper, those methods will be gathered,
presented, and discussed in the light of the current COVID-19 pandemic crisis.
In this paper, we assess the effectiveness of macroprudential policies in controlling
short- and long-term credit growth. Using a sample of 414 banks located in 61 countries,
we document that macroprudential policies manifest a stabilizing effect in the
short run, reducing credit growth, with borrower-targeted macroprudential policies
being the most effective in taming credit developments. However, in the long-term
tight macroprudential policies enhance credit growth. In this case, country-level analysis
shows that financial institution-targeted macroprudential policy is more effective
than the instruments that target borrowers, whereas at the bank-level the opposite is
true. In addition, using a difference-in-difference approach, we emphasize that there
is heterogeneity in the relationship among macroprudential policy and credit growth
across different types of countries, banking systems, policy regimes and banks. Our
findings stress the importance of macroprudential instruments in limiting excessive
lending, most notably borrower-based tools.
