The bank-lending channel of macroprudential policy: Evidence from cross-border bank flows

We study the transmission of foreign macroprudential policy to domestic bank loan issuance in emerging markets via cross-border bank flows. We use the universe of bilateral cross-border bank credit transactions to destination countries matched to the macroprudential policy stance in source countries combined with bank balance sheet data in destination markets to document that a tightening of macroprudential policy in source countries reduces the positive impact of cross-border flows on the credit supply of banks in the destination. We show that the negative spillover effect of foreign macroprudential policy is operational only for capital-based and international-exposure policy tools. We also find evidence that macroprudential regulation in source countries shifts credit demand by borrowing firms and households across banks in the destination, whereas regulation performed by destination countries does not change the inward spillovers associated with cross-border flows.

FABIANI Josefina;  NEANIDIS Kyriakos C.; 

2025-09-02

ELSEVIER

JRC143523

1873-0353 (online),   

https://doi.org/10.1016/j.jinteco.2025.104135,    https://publications.jrc.ec.europa.eu/repository/handle/JRC143523,   

10.1016/j.jinteco.2025.104135 (online),