Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Stijn Claessens (), Swart Ghosh and Roxana Mihet

No 2014/155, IMF Working Papers from International Monetary Fund

Abstract: Macro-prudential policies aimed at mitigating systemic financial risks have become part of the policy toolkit in many emerging markets and some advanced countries. Their effectiveness and efficacy are not well-known, however. Using panel data regressions, we analyze how changes in balance sheets of some 2,800 banks in 48 countries over 2000–2010 respond to specific macro-prudential policies. Controlling for endogeneity, we find that measures aimed at borrowers––caps on debt-to-income and loan-to-value ratios––and at financial institutions––limits on credit growth and foreign currency lending––are effective in reducing asset growth. Countercyclical buffers are little effective through the cycle, and some measures are even counterproductive during downswings, serving to aggravate declines, consistent with the ex-ante nature of macro-prudential tools.

Keywords: WP; country; bank; macro-prudential policy; policy; Systemic risk; Macropudential policies; Effectiveness; Banking vulnerabilities; asset growth; bank leverage; lending spiral; bank control variables; Adressing bank buffer; bank asset; leveraged bank; risk appetite; balance sheets behavior; financial institution; Emerging and frontier financial markets; Credit; Capital account; Reserve requirements; Financial statements; Global (search for similar items in EconPapers)
Pages: 36
Date: 2014-08-19
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Citations: View citations in EconPapers (56)

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Journal Article: Macro-prudential policies to mitigate financial system vulnerabilities (2013)
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