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Macroprudential and monetary policy tightening: more than a double whammy?

Author

Listed:
  • Behn, Markus
  • Claessens, Stijn
  • Gambacorta, Leonardo
  • Reghezza, Alessio

Abstract

We investigate the interaction between monetary and macroprudential policy in affecting banks’ lending and risk-taking behaviour using rich euro area credit registry data and exploiting a unique setting that combined a sharp and unexpected monetary tightening with a wave of macroprudential tightening initiated before. While, for the average bank, required capital buffer increases did not significantly reduce lending additionally during the monetary tightening, for those banks that became capital-constrained lending fell by about 1.3-1.8 percentage points more for existing credit relationships and new bank-firm relationships were 2.5-4.4 percentage points less likely to be established, both relative to better-capitalized banks. In addition, such banks were more reluctant to pass higher policy interest rates on to their borrowers and took fewer risks, with a greater reduction in the LTV ratio for newly originated loans, and less reliance on risky assets, such as commercial real estate, as collateral. Our analysis shows that when calibrating monetary and macroprudential policies, it is crucial to account for the effects of policy interactions and the role of bank heterogeneity. JEL Classification: E5, E51, G18, G21

Suggested Citation

  • Behn, Markus & Claessens, Stijn & Gambacorta, Leonardo & Reghezza, Alessio, 2025. "Macroprudential and monetary policy tightening: more than a double whammy?," Working Paper Series 3043, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20253043
    Note: 2203070
    as

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    More about this item

    Keywords

    bank lending; macroprudential policy; monetary policy; risk-taking;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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