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Effectiveness of macroprudential policies: Do stringent bank regulation and supervision matter?

Ali Mirzaei and Anis Samet

International Review of Economics & Finance, 2022, vol. 80, issue C, 342-360

Abstract: In this paper, we examine the effectiveness of macroprudential policies in limiting credit growth conditional on the quality of bank regulation and supervision. Using a large panel data set of 4109 banks from 91 countries over the period 2001–2013, we find that the efficacy of macroprudential measures is more pronounced in countries with stricter bank supervisory power and more private monitoring. This result is robust to a battery of sensitivity tests. Our additional analysis reveals that adopted macroprudential tools limit more the credit growth of small, less-capitalized, and less-liquid banks when accompanied with stringent bank regulation. In particular, low-capital and low-liquid banks reduce their loans more than their high-capital and high-liquid counterparts, following the activation of macroprudential measures. Overall, our findings imply that the quality of bank regulation and supervision conditions the effectiveness of macroprudential measures.

Keywords: Bank regulation; Bank supervision; Bank private monitoring; Macroprudential policies; Loan growth (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.iref.2022.02.037

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