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Macroprudential regulation of credit booms and busts -- the case of Croatia

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  • Kraft, Evan
  • Galac, Tomislav

Abstract

Croatia employed macroprudential measures to manage credit growth and capital inflows during the boom years of the 2000s, including reserve requirements on loan growth, a marginal reserve requirement on increases in foreign liabilities, foreign exchange liquidity minima, and elevated capital adequacy ratios. Although quantitative analysis is complicated by substantial overlaps among measures, the econometric results in this paper suggest that the measures were most effective in requiring banks to hold high liquidity and capital buffers, and less effective in slowing credit growth and capital inflows. Larger buffers seem to have helped Croatian banks weather the financial crisis, making the adjustments to capital and liquidity during the crisis smaller.

Suggested Citation

  • Kraft, Evan & Galac, Tomislav, 2011. "Macroprudential regulation of credit booms and busts -- the case of Croatia," Policy Research Working Paper Series 5772, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5772
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    References listed on IDEAS

    as
    1. Evan Kraft, 2007. "The Boom in Household Lending in Transition Countries: A Croatian Case Study and a Cross-Country Analysis of Determinants," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 49(3), pages 345-366, September.
    2. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2007. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," MPRA Paper 6759, University Library of Munich, Germany.
    3. Evan Kraft, 2004. "Foreign Banks in Croatia: Reasons for Entry, Performance and Impacts," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(2), pages 153-174, August.
    4. Tomislav Galac & Lana Dukić, 2008. "Results of the Fourth CNB Bank Survey," Surveys 16, The Croatian National Bank, Croatia.
    5. Kraft, Evan & Jankov, Ljubinko, 2005. "Does speed kill? Lending booms and their consequences in Croatia," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 105-121, January.
    6. Tomislav Galac, 2005. "Results of the Third CNB Bank Survey: Croatian Banking in the Consolidation and Market Positioning Stage, 2000 - 2002," Surveys 14, The Croatian National Bank, Croatia.
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    Citations

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    Cited by:

    1. Maja Bukovšak & Gorana Lukinić Čardić & Nina Pavić, 2020. "Structure of capital flows and exchange rate: the case of Croatia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 113-146, February.
    2. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, December.
    3. Jérôme Vandenbussche & Piyabha Kongsamut & Dilyana Dimova, 2018. "Macroprudential Policy Effectiveness: Lessons from Southeastern Europe," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(9), pages 60-102, May.
    4. Mr. Daniel C Hardy & Philipp Hochreiter, 2014. "A Simple Macroprudential Liquidity Buffer," IMF Working Papers 2014/235, International Monetary Fund.
    5. Evan Kraft & Ivan Huljak, 2018. "How Competitive is Croatia’s Banking System? A Tale of Two Credit Booms and Two Crises," Working Papers 54, The Croatian National Bank, Croatia.
    6. Ms. Juliana Dutra Araujo & Manasa Patnam & Ms. Adina Popescu & Mr. Fabian Valencia & Weijia Yao, 2020. "Effects of Macroprudential Policy: Evidence from Over 6,000 Estimates," IMF Working Papers 2020/067, International Monetary Fund.
    7. Saibal Ghosh, 2015. "Macroprudential regulation and bank behaviour: theory and evidence from a quasi-natural experiment," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 8(1-2), pages 138-159, July.
    8. Dilyana Dimova & Ms. Piyabha Kongsamut & Mr. Jerome Vandenbussche, 2016. "Macroprudential Policies in Southeastern Europe," IMF Working Papers 2016/029, International Monetary Fund.
    9. Jérôme Vandenbussche & Ursula Vogel & Enrica Detragiache, 2015. "Macroprudential Policies and Housing Prices: A New Database and Empirical Evidence for Central, Eastern, and Southeastern Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 343-377, March.
    10. Ana Kundid Novokmet, 2021. "Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed," JRFM, MDPI, vol. 14(2), pages 1-21, February.
    11. Araujo, Juliana & Patnam, Manasa & Popescu, Adina & Valencia, Fabian & Yao, Weijia, 2024. "Effects of macroprudential policy: Evidence from over 6000 estimates," Journal of Banking & Finance, Elsevier, vol. 169(C).
    12. Bas B. Bakker & Giovanni Dell'Ariccia & Luc Laeven & Jérôme Vandenbussche & Deniz O Igan & Hui Tong, 2012. "Policies for Macrofinancial Stability; How to Deal with Credit Booms," IMF Staff Discussion Notes 12/06, International Monetary Fund.
    13. Mario Bambulovic & Miljana Valdec, 2020. "Testing the characteristics of macroprudential policies’ differential impact on foreign and domestic banks’ lending in Croatia," Public Sector Economics, Institute of Public Finance, vol. 44(2), pages 221-249.
    14. Tihana Skrinjaric, 2023. "Leading indicators of financial stress in Croatia: a regime switching approach," Public Sector Economics, Institute of Public Finance, vol. 47(2), pages 205-232.

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    Keywords

    Banks&Banking Reform; Debt Markets; Access to Finance; Emerging Markets; Bankruptcy and Resolution of Financial Distress;
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