The Anatomy of the Transmission of Macroprudential Policies

Acharya, Viral V.; Bergant, Katharina; Crosignani, Matteo; Eisert, Tim; McCann, Fergal

doi:10.2139/ssrn.3388963

Cited by 16 publications

(14 citation statements)

References 69 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This prediction is consistent with evidence in Acharya et al. (2018), who finds that when the Central Bank of Ireland imposed restrictions on the issuance of risky loans to urban borrowers, banks that were initially heavily exposed aggressively expanded their issuance of loans to safer borrowers in rural counties.…”

Section: Empirical Relevancesupporting

confidence: 90%

The Forced Safety Effect: How Higher Capital Requirements Can Increase Bank Lending

Bahaj¹,

Malherbe

2020

The Journal of Finance

View full text Add to dashboard Cite

Government guarantees generate an implicit subsidy for banks. A capital requirement reduces this subsidy, through a simple liability composition effect. However, the guarantees also make a bank undervalue loans that generates surplus in states of the world in which it defaults. Raising the capital requirement makes the bank safer, which alleviates this problem. We refer to this mechanism, which we argue is empirically relevant, as the forced safety effect. * Saleem Bahaj is at the Bank of England (BoE). Frederic Malherbe is at the University College London. We are indebted to the Editor Philip Bond, the Associate Editors, and two anonymous referees. A previous version was circulated under the title: "A Positive Analysis of Bank Behaviour under Capital Requirements." This paper drew extensively on the BoE Staff Working Paper (Bahaj et al. (2016)) that we wrote with Jonathan Bridges and Cian O'Neill. We thank them for their contribution and for allowing us to build off this previous work. We are particularly grateful to

show abstract

Section: Empirical Relevancesupporting

confidence: 90%

The Forced Safety Effect: How Higher Capital Requirements Can Increase Bank Lending

Bahaj¹,

Malherbe

2020

The Journal of Finance

View full text Add to dashboard Cite

show abstract

“…The aim is to provide an empirical background for the normative analysis that we conduct later in this paper. A number of comprehensive empirical studies have analyzed macroprudential policies and their effectiveness in emerging and advanced economies (e.g., Cerutti et al, 2015;Buch et al, 2018;Ahnert and Kakhbod, 2017;Cordella et al, 2014;Acharya et al, 2017). We base the description provided here on the work of Cerutti et al (2015) and the survey by Galati and Moessner (2018).…”

Section: Macroprudential Policy Use and Effectivenessmentioning

confidence: 99%

A Fisherian approach to financial crises: Lessons from the Sudden Stops literature

Bianchi

Mendoza

2020

Review of Economic Dynamics

View full text Add to dashboard Cite

“…During the financial crisis, the Federal Reserve set up a number of new liquidity facilities (Fleming 2012). 7 These facilities, which were phased out within a few years of the end of the crisis, provided around $1.5 trillion of short-term liquidity to the financial system, an amount equivalent to 9 percent of commercial banks' and broker-dealers' assets. We posit that requiring firms to replace $1.5 trillion of their short-term funding with longer-term debt would have reduced liquidity outflows in the crisis in a way that would have avoided a need for extraordinary central bank liquidity facilities.…”

Section: Tools and Actions To Reduce Funding Mismatchesmentioning

confidence: 99%

“…It was generally seen as being insufficiently robust and was terminated following the failure of Lehman Brothers in 2008. 7 The facilities included the Discount Window Funding, the Term Auction Facility, the Primary Dealer Credit Facility, the Term Securities Lending Facility, the Term Asset-Backed Securities Loan Facility, the Commercial Paper Funding Facility, and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility.…”

Section: Tools and Actions To Reduce Funding Mismatchesmentioning

confidence: 99%

Would Macroprudential Regulation Have Prevented the Last Crisis?

Aikman

Bridges

Kashyap

et al. 2019

Journal of Economic Perspectives

View full text Add to dashboard Cite

How well equipped are today’s macroprudential regimes to deal with a rerun of the factors that led to the global financial crisis? To address the factors that made the last crisis so severe, a macroprudential regulator would need to implement policies to tackle vulnerabilities from financial system leverage, fragile funding structures, and the build-up in household indebtedness. We specify and calibrate a package of policy interventions to address these vulnerabilities—policies that include implementing the countercyclical capital buffer, requiring that banks extend the maturity of their funding, and restricting mortgage lending at high loan-to-income multiples. We then assess how well placed are two prominent macroprudential regulators, set up since the crisis, to implement such a package. The US Financial Stability Oversight Council has not been designed to implement such measures and would therefore make little difference were we to experience a rerun of the factors that preceded the last crisis. A macroprudential regulator modeled on the UK’s Financial Policy Committee stands a better chance because it has many of the necessary powers. But it too would face challenges associated with spotting build-ups in risk with sufficient prescience, acting sufficiently aggressively, and maintaining political backing for its actions.

show abstract

The Anatomy of the Transmission of Macroprudential Policies

Cited by 16 publications

References 69 publications

The Forced Safety Effect: How Higher Capital Requirements Can Increase Bank Lending

The Forced Safety Effect: How Higher Capital Requirements Can Increase Bank Lending

A Fisherian approach to financial crises: Lessons from the Sudden Stops literature

Would Macroprudential Regulation Have Prevented the Last Crisis?

Contact Info

Product

Resources

About