Featured Product

    ESRB Paper Studies Cross-Border Spillovers from Macroprudential Policy

    September 17, 2019

    ESRB publishes a working paper that examines the cross-border spillover of the effects of the nationally implemented macro-prudential policy. The findings support the existence of cross-border spillovers from macro-prudential policy. The study finds that the overall effect from more macro-prudential regulation is highly dependent on the income group of the countries in which banks operate.

    The results of the study, which involved data from a set of 157 countries, show that the effect of nationally implemented macro-prudential policy measures indeed spill across borders via international bank lending. The spillovers from macro-prudential policy measures are of opposite signs for advanced market economies and for emerging and developing market economies. This difference could be explained by the differences in how thoroughly macro-prudential regulation can be implemented and to what extent banks can engage in regulatory arbitrage. For macro-prudential policy measures targeting borrowers, the results are not as clear-cut, but some spillovers appear to exist. For banks operating in advanced economies, the marginal effect from macro-prudential policy measures targeting financial institutions is negative, regardless of whether the new macro-prudential policy measures are implemented in the origin country or the destination country.

    One of the conclusions is that banks not only appear to retreat from the more heavily regulated foreign markets but they also appear to retreat from foreign markets when more macro-prudential policy measures are implemented in the origin country. This could be an indication of little or no opportunities for regulatory arbitrage for banks in advanced economies. In contrast, for banks operating in the emerging and developing market economies, the effect from new macro-prudential policy measures in the origin or the destination country is positive. Banks are able to benefit from shifting lending to less regulated foreign markets. However, they are also able to make use of a funding advantage due to gaps in regulatory oversight in the destination country. Different opportunities for regulatory arbitrage could provide a logical explanation for the large and qualitative differences in marginal effects for the different country groups.

    The results serve to illustrate the differences in policy responses across countries with different banking sectors, regulatory frameworks, and financial environments. The obvious policy implication from the results is that there are leakages and spillovers from macro-prudential policy that may not be as expected. This should be taken into account by policymakers, as the use of macro-prudential policy measures appears set to become even more prevalent. These results also call for further research into what drives the different spillover effects from macro-prudential policy measures in these different country groups. The role of macro-prudential policy in fending off the effects of a next big crisis may be instrumental. Thus, it is of utmost importance to have a fundamental understanding of the capabilities and limitations of the different macro-prudential policy measures as well as an understanding of the implications of the possible cross-border spillovers.

     

    Related Link: Working Paper (PDF)

     

    Keywords: International, Europe, Banking, Macro-Prudential Policy, Regulatory Arbitrage, Systemic Risk, Cross-Border Spillovers, Emerging Markets, ESRB

    Featured Experts
    Related Articles
    News

    BCBS Amends Guidelines on Sound Management of AML/CFT Risks

    BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).

    July 02, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Amendments to Swap Margin Rule

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.

    July 01, 2020 WebPage Regulatory News
    News

    PRA Letter Sets Expectations on Approach to Managing Climate Risks

    PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.

    July 01, 2020 WebPage Regulatory News
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS Publishes List of Internationally Active Insurance Groups

    IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.

    July 01, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act

    FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).

    July 01, 2020 WebPage Regulatory News
    News

    EC Launches Consultation on Review of Solvency II Directive

    EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.

    July 01, 2020 WebPage Regulatory News
    News

    ECB Consults on Supervisory Approach to Consolidation in Banking

    ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS on Package for 2020 Data Collection on ICS and Aggregation Method

    IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.

    June 30, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5425