Can Macroprudential Measures Make Cross-Border Lending More Resilient?

We study the effect of macroprudential measures on cross-border lending during the taper tantrum, which saw a strong slowdown of cross-border bank lending to some jurisdictions. We use a novel dataset combining the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with the IBRN?s macroprudential database. Our results suggest that macroprudential measures implemented in borrowers? host countries prior to the taper tantrum significantly reduced the negative effect of the tantrum on cross-border lending growth. The shock-mitigating effect of host country macroprudential rules are present both in lending to banks and non-banks, and are strongest for lending flows to borrowers in advanced economies and to the non-bank sector in general. Source (lending) banking system measures do not affect bilateral lending flows, nor do they enhance the effect of host country macroprudential measures. Our results imply that policymakers may consider applying macroprudential tools to mitigate international shock transmission through cross-border bank lending.

[1]  Judit Temesvary.  The Role of Regulatory Arbitrage in U.S. Banks' International Flows: Bank‐Level Evidence , 2018 .

[2]  G. Karolyi,et al.  Cross-Border Bank Flows and Systemic Risk , 2018, Review of Finance.

[3]  E. Takáts,et al.  Monetary Policy Spillovers and Currency Networks in Cross-Border Bank Lending , 2016, Review of Finance.

[4]  L. Gambacorta,et al.  The International Dimensions of Macroprudential Policies , 2017 .

[5]  L. Goldberg,et al.  Cross-Border Prudential Policy Spillovers: How Much? How Important? Evidence from the International Banking Research Network , 2016, SSRN Electronic Journal.

[6]  Goetz von Peter,et al.  International Prudential Policy Spillovers: A Global Perspective , 2016 .

[7]  E. Takáts,et al.  The ECB's QE and Euro Cross-Border Bank Lending , 2016 .

[8]  Elisabetta Fiorentino,et al.  Changes in Prudential Policy Instruments - A New Cross-Country Database , 2016, SSRN Electronic Journal.

[9]  Kristin J. Forbes,et al.  The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies , 2016 .

[10]  Hélène Rey,et al.  World Asset Markets and the Global Financial Cycle , 2015 .

[11]  Robert N. McCauley,et al.  Breaking Free of the Triple Coincidence in International Finance , 2015 .

[12]  L. Laeven,et al.  The Use and Effectiveness of Macroprudential Policies: New Evidence , 2015, SSRN Electronic Journal.

[13]  P. McGuire,et al.  Enhancements to the BIS international banking statistics , 2015 .

[14]  S. Ongena,et al.  In Lands of Foreign Currency Credit, Bank Lending Channels Run Through? , 2014, Journal of International Economics.

[15]  Charles W. Calomiris,et al.  The international transmission of bank capital requirements: Evidence from the UK ☆ , 2014 .

[16]  E. Takáts,et al.  Cross-Border Bank Lending During the Taper Tantrum: The Role of Emerging Market Fundamentals , 2014 .

[17]  H. Tong,et al.  Bank Size and Systemic Risk , 2014 .

[18]  Gregory F. Udell,et al.  “When the cat's away the mice will play”: Does regulation at home affect bank risk-taking abroad? ☆ , 2013 .

[19]  Francis E. Warnock,et al.  Debt- and Equity-Led Capital Flow Episodes , 2012 .

[20]  Chen Lin,et al.  Regulatory Arbitrage and International Bank Flows , 2011 .

[21]  R. Moessner,et al.  Macroprudential Policy – A Literature Review , 2011 .

[22]  J. Ocampo,et al.  Reforming the international monetary system , 2011 .

[23]  Ingo Fender,et al.  Bank Structure, Funding Risk and the Transmission of Shocks Across Countries: Concepts and Measurement , 2010 .

[24]  Stephen G. Cecchetti,et al.  Toward a Global Risk Map , 2010 .

[25]  Nicola Cetorelli,et al.  Banking Globalization and Monetary Transmission , 2009 .

[26]  A. Khwaja,et al.  Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market , 2006 .

[27]  C. Borio,et al.  Towards a Macroprudential Framework for Financial Supervision and Regulation? , 2003 .

[28]  C. Borio.  Towards a Macroprudential Framework for Financial Supervision and Regulation? , 2003 .

[29]  A. Crockett,et al.  Marrying the micro-and macroprudential dimensions of financial stability , 2000 .