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

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8280