The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies
Name
w22307.pdf
Size
657.02 KB
Format
Adobe PDF
Checksum (MD5)
d6f6a5f01d25099d8e3bbe7ff2bf7145
Author(s)
Reinhardt, Dennis
Wieladek, Tomasz
Forbes, Kristin J
Date Issued
November 2016
Journal
Journal of Monetary Economics
Publisher
Elsevier BV
Citation
Forbes, Kristin et al. “The Spillovers, Interactions, and (un)intended Consequences of Monetary and Regulatory Policies.” Journal of Monetary Economics 85 (January 2017): 1–22 © 2016 Bank of England
Version
Original manuscript
Abstract
Have bank regulatory policies and unconventional monetary policies—and any possible interactions—been a factor behind the recent “deglobalisation” in cross-border bank lending? To test this hypothesis, we use bank-level data from the UK—a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the UK׳s Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on cross-border lending. Quantitative easing did not appear to have a similar effect and countries with stronger prudential capital regulations were partially insulated against the effects of these changes in UK policy. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the global contraction in cross-border lending. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending. Keywords: Capital requirements; Funding for Lending Scheme; Financial deglobalisation
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/J.JMONECO.2016.10.008
