Informing Macroprudential Policy Choices Using Credit Supply and Demand Decompositions

39 Pages Posted: 10 Aug 2022

See all articles by Claudio Barbieri

Claudio Barbieri

European Central Bank (ECB)

Cyril Couaillier

Banque de France; European Central Bank (ECB)

Cristian Perales

European Central Bank (ECB)

Costanza Rodriguez d’Acri

European Central Bank (ECB)

Date Written: August 1, 2022

Abstract

Macroprudential policies should strengthen the banking sector throughout the financial cycle. However, while bank credit growth is used to capture cyclical exuberance and calibrate buffer requirements, it depends on potentially heterogeneous dynamics on the borrower and lender side. By decomposing credit growth into a common component and components capturing heterogeneity in supply and demand à la Amiti and Weinstein, 2018 applied on the euro area credit register ("AnaCredit"), we can inform the policy debates in two ways. Ex ante, we introduce a framework mapping the decomposition to different types of macroprudential instruments, specifically broad vs. targeted measures. Ex post, we also show that the resulting decomposition can be used to assess the effectiveness of adopted measures on credit supply or demand. We find evidence that buffer releases and credit guarantees increased bank credit supply during the COVID-19 pandemic and interacted positively with banks' profitability.

Keywords: bank-lending channel, buffer releases, capital requirements, credit dynamics, European economy

JEL Classification: E58, E52, E44, G21

Suggested Citation

Barbieri, Claudio and Couaillier, Cyril and Perales, Cristian and d’Acri, Costanza Rodriguez, Informing Macroprudential Policy Choices Using Credit Supply and Demand Decompositions (August 1, 2022). ECB Working Paper No. 2022/2702, Available at SSRN: https://ssrn.com/abstract=4186447 or http://dx.doi.org/10.2139/ssrn.4186447

Claudio Barbieri (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Cyril Couaillier

Banque de France ( email )

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Cristian Perales

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Costanza Rodriguez D’Acri

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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