Macroprudential and monetary policy: loan-level evidence from reserve requirements

Peydró, José-Luis, Cecilia Dassatti, Francesc Rodriguez Tous and Sergio Vicente
Authors registered in the RePEc Author Service: Jose-Luis Peydro

No 14224, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital in inflows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies.

Keywords: Credit supply; Monetary policy; International financial policy; Banks; Government policy and regulation (search for similar items in EconPapers)
JEL-codes: E51 E52 F38 G21 G28 (search for similar items in EconPapers)
Date: 2020-07
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Working Paper: Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements (2019)
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