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The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies

Kristin Forbes, Dennis Reinhardt and Tomasz Wieladek

No 22307, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Have bank regulatory policies and unconventional monetary policies—and any possible interactions—been a factor behind the recent “deglobalisation” in cross-border bank lending? To test this hypothesis, we use bank-level data from the UK—a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the UK’s Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on cross-border lending. Quantitative easing did not appear to have a similar effect. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the global contraction in cross-border lending. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-net
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Forbes, Kristin & Reinhardt, Dennis & Wieladek, Tomasz, 2017. "The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 1-22.

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Journal Article: The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies (2017) Downloads
Working Paper: The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies (2016) Downloads
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