Leakages from macroprudential regulations: the case of household-specific tools and corporate credit

Apoorv Bhargava, Lucyna Gόrnicka and Peichu Xie
Authors registered in the RePEc Author Service: Lucyna Gornicka

No 2784, Working Paper Series from European Central Bank

Abstract: Sector-specific macroprudential regulations can increase the riskiness of credit to other sec-tors. First, using cross-country bank-level data we find that after a tightening of household-specific macroprudential policy during a credit expansion, banks with larger portfolios of residential mortgages increase their corporate lending by more than banks with smaller mortgage portfolios. Second, we compute three country-level measures of the riskiness of corporate credit allocation based on firm-level data. Consistently across the measures, an unexpected tightening of household-specific macroprudential tools during a credit expansion is followed by an increase in riskiness of corporate credit. These effects are quantitatively meaningful: the riskiness of corporate credit increases by around 10 percent of the historical standard deviation following an unexpected policy tightening. Further evidence from bank lending standards surveys suggests that the leakage effects are stronger for larger firms com-pared to SMEs, consistent with recent evidence on the use of personal real estate as loan collateral by small firms. JEL Classification: G21, G28, G38

Keywords: corporate credit risk; corporate loan growth; macroprudential regulations; sector-specific financial regulations (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-ure
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Working Paper: Leakages from Macroprudential Regulations: The Case of Household-Specific Tools and Corporate Credit (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232784

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