Macroprudential policy and the revolving door of risk: lessons from leveraged lending guidance

Sooji Kim, Matthew Plosser and Joao Santos

No 815, Staff Reports from Federal Reserve Bank of New York

Abstract: We investigate the U.S. experience with macroprudential policies by studying the interagency guidance on leveraged lending. We find that the guidance primarily impacted large, closely supervised banks, but only after supervisors issued important clarifications. It also triggered a migration of leveraged lending to nonbanks. While we do not find that nonbanks had more lax lending policies than banks, we unveil important evidence that nonbanks increased bank borrowing following the issuance of guidance, possibly to finance their growing leveraged lending. The guidance was effective at reducing banks? leveraged lending activity, but it is less clear whether it accomplished its broader goal of reducing the risk that these loans pose for the stability of the financial system. Our findings highlight the importance of supervisory monitoring for macroprudential policy goals, and the challenge that the revolving door of risk poses to the effectiveness of macroprudential regulations.

Keywords: leveraged loans; supervision; banks; macroprudential regulations; enforcement; shadow banking (search for similar items in EconPapers)
JEL-codes: G18 G21 G23 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-05-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-rmg
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Citations: View citations in EconPapers (1)

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Journal Article: Macroprudential policy and the revolving door of risk: Lessons from leveraged lending guidance (2018)
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