The Impact of Macroprudential Policies on the Vulnerability of the Banking System: Dynamic Panel Model

Nafiseh Keshtgar (), Mosayeb Pahlavani () and Seyed Hossein Mirjalili
Additional contact information
Nafiseh Keshtgar: Faculty of Economics and Management, University of Sistan and Baluchestan
Mosayeb Pahlavani: Faculty of Economics and Management, University of Sistan and Baluchestan

Journal of Money and Economy, 2020, vol. 15, issue 4, 357-379

Abstract: In the aftermath of the global financial crisis (2007-2009), policymakers in the developing countries and emerging economies have generally relied on macroprudential policies to achieve financial stability. Since the banking system's vulnerability plays an essential role in financial instability, and the banking system's stability is exposed to vulnerability, we examine macroprudential policies' effectiveness in reducing banking vulnerability and economic instability through containing credit growth. We estimated a dynamic panel for 14 Iranian banks using GMM and Arellano-Bovar / Blundell-bond two-stage estimators during 2009-2018. The results indicate that the increase in lending rates in the interbank market leads to the banking system's contraction of lending capacity. The positive and significant effect of the economic growth index indicates the banks' procyclical behavior. That financial institutions in the business cycles behave procyclical in lending. The diminishing effect of the macroprudential policy index on the bank credit expansion indicates that macroprudential authority and policy tools' application reduces the banking system's instability and vulnerability. Therefore, to reduce financial intermediation instability, the financial sector regulator can institutionalize macroprudential policies.

Keywords: Bank Credit; Macroprudential Policy; GMM Dynamic Panel; Iranian Banking (search for similar items in EconPapers)
JEL-codes: C22 C82 E32 E44 G01 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://jme.mbri.ac.ir/article-1-510-en.pdf (application/pdf)
http://jme.mbri.ac.ir/article-1-510-en.html (text/html)

Related works:
Journal Article: The Impact of Macroprudential Policies on the Vulnerability of the Banking System: Dynamic Panel Model (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mbr:jmonec:v:15:y:2020:i:4:p:357-379

Access Statistics for this article

More articles in Journal of Money and Economy from Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran Contact information at EDIRC.
Bibliographic data for series maintained by M. E. ().