Macroprudential policy and bank risk

•Macroprudential tools have a significant impact on bank risk.•The responses differ among banks, depending on size, capital level and funding model.•Macroprudential policies are most effective during tightening cycles. This paper investigates the effects of macroprudential policies on bank risk thro...

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Bibliographic Details
Published in:Journal of international money and finance 2018-03, Vol.81, p.203-220
Main Authors: Altunbas, Yener, Binici, Mahir, Gambacorta, Leonardo
Format: Article
Language:English
Subjects:
Bank risk
Effectiveness
Macroprudential policies
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Summary:•Macroprudential tools have a significant impact on bank risk.•The responses differ among banks, depending on size, capital level and funding model.•Macroprudential policies are most effective during tightening cycles. This paper investigates the effects of macroprudential policies on bank risk through a large panel of banks operating in 61 advanced and emerging market economies. There are three main findings. First, there is evidence suggesting that macroprudential tools have a significant impact on bank risk. Second, the responses to changes in macroprudential tools differ among banks, depending on their specific balance sheet characteristics. In particular, banks that are small, weakly capitalised and with a higher share of wholesale funding react more strongly to changes in macroprudential tools. Third, controlling for bank-specific characteristics, macroprudential policies are more effective in a tightening than in an easing episode.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2017.11.012