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

    EC Rule on Contractual Recognition of Write Down and Conversion Powers

    The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.

    September 17, 2021 WebPage Regulatory News
    News

    APRA Issues Further Guidance on Application of Securitization Standard

    The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.

    September 16, 2021 WebPage Regulatory News
    News

    SRB Provides Update on Approach to Prior Permissions Regime

    The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.

    September 16, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries

    The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Guidance to Assess Breaches of Large Exposure Limits

    The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.

    September 15, 2021 WebPage Regulatory News
    News

    PRA Finalizes Changes to Consolidated Prudential Rules Under CRD5/CRR2

    The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Revises Guidelines on Stress Tests of Deposit Guarantee Schemes

    The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).

    September 15, 2021 WebPage Regulatory News
    News

    Nordea Bank and EIB Sign Agreement to Fund Green Projects in Nordics

    The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.

    September 15, 2021 WebPage Regulatory News
    News

    HKMA Endorses Industry Guidance to Support LIBOR Transition

    The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).

    September 14, 2021 WebPage Regulatory News
    News

    OCC Issues Booklet on Supervision of Problem Banks

    The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.

    September 13, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7481