Macroprudential policy and the tail risk of credit growth

Jorge E. Galán
Additional contact information
Jorge E. Galán: BANCO DE ESPAÑA

No 2509, Working Papers from Banco de España

Abstract: I show that macroprudential policy has significant heterogeneous and time-varying effects on the credit growth distribution. These effects are particularly evident in reducing rightward skewness during expansionary periods of the financial cycle, thereby mitigating the upside risk of credit growth. Conversely, during financial crises, the relaxation of macroprudential policy positively impacts the left tail, reducing the risk of severe credit contractions. These findings align with previously documented benefits of macroprudential policy on the downside risk of GDP growth, providing evidence of the mechanism through which these policies act via credit growth. I also identify interactions between macroprudential policy, bank profitability and monetary policy. High bank profitability limits the effectiveness of macroprudential policy in curbing excessive credit growth, while macroprudential policy complements monetary policy by targeting tail risks, which affects the credit growth distribution more uniformly. I also find significant disparities based on the type of tool implemented and the sector targeted. Borrower-based measures are particularly effective in moderating household credit during expansions, whereas capital releases are especially supportive of credit to non-financial corporations during crises.

Keywords: credit growth; financial stability; systemic risk; macroprudential policy; quantile regressions (search for similar items in EconPapers)
JEL-codes: C32 E32 E58 G01 G28 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2025-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 25/Files/dt2509e.pdf First version, January 2025 (application/pdf)

Related works:
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:bde:wpaper:2509

DOI: 10.53479/38957

Access Statistics for this paper

More papers in Working Papers from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().