International Banking and Cross-Border Effects of Regulation: Lessons from Poland

Krzysztof Gajewski and Oskar Krzesicki
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Krzysztof Gajewski: Narodowy Bank Polski
Oskar Krzesicki: Narodowy Bank Polski

International Journal of Central Banking, 2017, vol. 13, issue 2, 315-340

Abstract: The main goal of this paper is to determine whether foreign banks adjust their lending in Poland in response to changes to regulatory policy in their home countries. Poland, with its conservative, predominately foreign-owned banks concentrated on domestic activities, is an interesting case to study the existence of inward policy spillovers. Bank-level data and fixedeffect panel models are used to assess the impact of homecountry regulations on the quarterly growth rate of lending to the domestic non-financial private sector. We especially focus on the changes in capital requirements, as they have been expected by Polish regulators to negatively affect the operations of foreign-owned banks in Poland. We find that tightening capital requirements in the home countries of Polish foreign-owned banks has a significant, negative effect on credit extension in Poland; however, when we also account for Polish regulations in this area, the impact of home-country changes is no longer significant, which suggests that local regulatory actions are more important for banks. We also document the impact of cumulative changes in prudential policies that differs depending on cycle conditions in the home countries of foreign-owned banks.

Date: 2017
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