Do macroprudential policies affect bank efficiency? Evidence from emerging economies

This paper assesses the impact of macroprudential policies on the efficiency of banks. Using the data of more than 1,000 commercial banks in 36 emerging economies during the period of 2000–2016, we first estimate bank-level efficiency by using the stochastic frontier approach and then adopt the fixed effects estimator to examine the impact of macroprudential policies on bank efficiency. We present consistent evidence on following three main findings. First, bank efficiency increases significantly with more stringent macroprudential policies. Second, there are competing effects of the macroprudential instruments aimed to increase the banking sector’s resilience and those aimed to smooth the credit cycle. The latter is shown to have more favorable impact on bank efficiency. Third, conditional on bank characteristics, macroprudential policies exert distributional effects on bank efficiency--more conspicuously on banks with less capitalization and lower market power and more on domestic private banks than state-owned banks and foreign banks.