Can Macroprudential Measures Make Cross-Border Lending More Resilient?

30 Pages Posted: 20 Dec 2017

See all articles by Előd Takáts

Előd Takáts

Bank for International Settlements (BIS)

Judit Temesvary

Board of Governors of the Federal Reserve System

Date Written: December 2017

Abstract

We study the effect of macroprudential measures on cross-border lending during the taper tantrum, which a saw strong slowdown in cross-border bank lending to some jurisdictions. We use a novel dataset combining the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with the IBRN's macroprudential database. Our results suggest that macroprudential measures implemented in borrowers' host countries prior to the taper tantrum significantly reduced the negative effect of the tantrum on cross-border lending growth. The shock-mitigating effect of host country macroprudential rules are present both in lending to banks and non-banks, and are strongest for lending flows to borrowers in advanced economies and to the non-bank sector in general. Source (lending) banking system measures do not affect bilateral lending flows, nor do they enhance the effect of host country macroprudential measures. Our results imply that policymakers may consider applying macroprudential tools to mitigate international shock transmission through cross-border bank lending.

Keywords: taper tantrum, cross-border claims, macroprudential policy, diff-in-diff analysis

JEL Classification: F34, F42, G21, G38

Suggested Citation

Takáts, Előd and Temesvary, Judit, Can Macroprudential Measures Make Cross-Border Lending More Resilient? (December 2017). BIS Working Paper No. 683, Available at SSRN: https://ssrn.com/abstract=3089216

Előd Takáts (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Judit Temesvary

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-3759 (Phone)

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