Tightening and loosening of macroprudential policy, its effects on credit growth and implications for the COVID-19 crisis

Ćehajić, Aida (author), Košak, Marko (author)

In this study, we analyze the effects of macroprudential measures on bank lending in the European Union. We develop several dedicated macroprudential policy indices reflecting different policy actions taken by the authorities in individual member countries, with the aim to affect credit activity in national banking sectors. In our empirical model, we measure responsiveness of gross loans in banks to selected macroprudential policy indices, taking into account a set of bank level and macroeconomic control variables. We use the Fitch Connect bank level dataset with financial statements for 3,434 European banks with 18,616 observations and macroeconomic data provided by the World Bank and IMF statistics covering the period between 2000 and 2017. Information on the use of macroprudential instruments is taken from a new macroprudential policy database, MaPPED, gathered and published by European Central Bank, where we were able to extract the information on both timing and the direction of use of the macroprudential policy instruments. Our findings show that macroprudential instruments can be used effectively for regulatory modulation of credit activity in banks, with some fluctuations in the level of the effectiveness through the business cycles. Therefore, in loosening cycles, macroprudential measures are found to be strongly and positively associated with bank lending. On the other side, tightening actions are found to have a downward effect on bank lending, while these effects are less pronounced. These results are of great importance in the current crisis arising from the impact of COVID-19, as policymakers are trying to support the economy by easing macroprudential regulatory constraints to ensure lending to the real sector.

• Language: English
• Keywords: banks, financial policy, credit, macroprudential policy, bank lending, credit growth, financial stability, credit cycles
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2021
• Number of pages: Str. 207-233
• Numbering: Vol. 23, iss. 4 (art. 1)
• PID: 20.500.12556/RUL-145160
• UDC: 336.71
• ISSN on article: 2335-4216
• DOI: 10.15458/2335-4216.1293
• COBISS.SI-ID: 91642115
• Publication date in RUL: 11.04.2023

Record is a part of a journal

• Title: Economic and business review
• Publisher: Ekonomska fakulteta
• ISSN: 2335-4216
• COBISS.SI-ID: 268649216

Licences

• License: CC BY-NC-ND 4.0, Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
• Link: http://creativecommons.org/licenses/by-nc-nd/4.0/
• Description: The most restrictive Creative Commons license. This only allows people to download and share the work for no commercial gain and for no other purposes.

Secondary language

• Language: Slovenian
• Keywords: banke, finančna politika, krediti

Projects

• Funder: EC - European Commission
• Funding programme: Erasmus Mundus
• Project number: 551984-EM-1-2014-1-ESERA MUNDUS-EMA21
• Name: Smart and Green technologies for innovative and sustainable societies in Western Balkans
• Acronym: Green-Tech-WB