The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies
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 resu...
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| Format: | Article |
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Elsevier BV
2019
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| Online Access: | http://hdl.handle.net/1721.1/120932 https://orcid.org/0000-0002-9340-6063 |
| _version_ | 1811084056995037184 |
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| author | Reinhardt, Dennis Wieladek, Tomasz Forbes, Kristin J |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Reinhardt, Dennis Wieladek, Tomasz Forbes, Kristin J |
| author_sort | Reinhardt, Dennis |
| collection | MIT |
| description | 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 |
| first_indexed | 2024-09-23T12:43:59Z |
| format | Article |
| id | mit-1721.1/120932 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T12:43:59Z |
| publishDate | 2019 |
| publisher | Elsevier BV |
| record_format | dspace |
| spelling | mit-1721.1/1209322022-09-28T09:45:00Z The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies Reinhardt, Dennis Wieladek, Tomasz Forbes, Kristin J Sloan School of Management Forbes, Kristin J 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 2019-03-12T19:06:26Z 2019-03-12T19:06:26Z 2016-11 2016-10 2019-02-13T15:44:37Z Article http://purl.org/eprint/type/JournalArticle 0304-3932 http://hdl.handle.net/1721.1/120932 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 https://orcid.org/0000-0002-9340-6063 http://dx.doi.org/10.1016/J.JMONECO.2016.10.008 Journal of Monetary Economics Creative Commons Attribution-NonCommercial-NoDerivs License http://creativecommons.org/licenses/by-nc-nd/4.0/ application/pdf Elsevier BV NBER |
| spellingShingle | Reinhardt, Dennis Wieladek, Tomasz Forbes, Kristin J The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies |
| title | The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies |
| title_full | The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies |
| title_fullStr | The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies |
| title_full_unstemmed | The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies |
| title_short | The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies |
| title_sort | spillovers interactions and un intended consequences of monetary and regulatory policies |
| url | http://hdl.handle.net/1721.1/120932 https://orcid.org/0000-0002-9340-6063 |
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