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Do macroprudential policy instruments reduce the procyclical impact of capital ratio on bank lending? Cross-country evidence

Author

Listed:
  • Malgorzata Olszak

    (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Warsaw, Poland)

  • Sylwia Roszkowska

    (Faculty of Economic and Social Sciences, University of Lodz, Lodz, Poland)

  • Iwona Kowalska

    (Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Warsaw, Poland)

Abstract

In this paper, we ask about the capacity of macroprudential policies to reduce the procyclical impact of capital ratio on bank lending. We focus on aggregated macroprudential policy measures and on individual instruments and test whether their effect on the association between lending and capital depends on bank size. Applying the GMM 2-step Blundell and Bond approach to a sample covering over 60 countries, we find that macroprudential policy instruments reduce the procyclical impact of capital on bank lending during both crisis and non-crisis times. This result is stronger in large banks than in other banks. Of individual macroprudential instruments, only borrower-targeted LTV caps and DTI ratio weaken the association between lending and capital and thus act countecyclically. Generally, with our study we are able to support the view that macroprudential policy has the potential to curb the procyclical impact of bank capital on lending and therefore, the introduction of more restrictive international capital standards included in Basel III and of macroprudential policies are fully justified.

Suggested Citation

  • Malgorzata Olszak & Sylwia Roszkowska & Iwona Kowalska, 2019. "Do macroprudential policy instruments reduce the procyclical impact of capital ratio on bank lending? Cross-country evidence," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 19(1), pages 1-38.
    • Handle: RePEc:bic:journl:v:19:y:2019:i:1:p:1-38
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    File URL: https://www.tandfonline.com/doi/full/10.1080/1406099X.2018.1547565
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    Citations

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    Cited by:

    1. G. Gospodarchuk G. & Г. Господарчук Г., 2019. "Резервный буфер капитала как инструмент макропруденциальной политики // Reserve Capital buffer as an Instrument of Macroprudential Policy," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 23(4), pages 43-56.

    More about this item

    Keywords

    Loan supply; capital ratio; procyclicality; macroprudential policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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