Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability?

Abstract

for outstanding research assistance and to Jérôme Vandenbussche, Ursula Vogel, and Enrica Detragiache for sharing their data. The views in this paper are those of the authors and do not necessarily represent the views of any institution with which they are affiliated. cross-border bank FX borrowing by more than half. At the same time, corporates increase FX debt issuance by about 10% of median annual FX debt issuance for the full sample, equivalent to a 15%-20% increase in FX corporate debt issuance for countries such as Brazil and Indonesia. Overall, our findings inform the policy debate on macroprudential regulations and highlight the need to assess their full impact on the economy.

How does the interaction of macroprudential and monetary policies affect cross-border bank lending?

“…Given the significant results on the LTV ratio caps that operate on the credit demand side, we apply our analytic setup on a credit supply-side tool: reserve requirements on banks' FX funds. There is some recent evidence that macroprudential FX regulations impact cross-border lending flows (when enacted on banks in borrowers' countries; Ahnert et al, 2019), and, technically, this tool is also directly comparable across the IBRN and IMF iMaPP databases.…”

Macroprudential Policy: What We’ve Learned, Don’t Know, and Need to Do

“…(2014) shows that increased capital requirements on UK domestic banks causes foreign banks to increase their UK lending, with this "leakage" about one-third of the contraction in lending by UK banks Ahnert et al (2018). shows that tighter regulations on FX bank borrowing causes companies to increase FX debt issuance, with this "leakage" about…”

Cross-border Banking and the Circumvention of Macroprudential and Capital Control Measures

“…6 Interestingly, although we do not find that bond market inflow restrictions at the borrower country level are associated with larger direct cross-border banking borrowing, our positive impact in terms of flows through local affiliate could explain the positive spillover with respect to overall crossborder flows (which includes both direct cross-border and other intergroup cross-border flows) pointed out in Bruno, Shim, and Shin (2017). A related type of cross-type arbitrage has also been documented by Ahnert, Forbes, Friedrich, and Reinhardt (2017), who show that some corporates respond to reduced lending from banks (due to foreign currency MPM) by increasing their foreign currency debt issuance.…”