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Heterogeneous effects of the implementation of macroprudential policies on bank risk

Ely, Regis Augusto and Tabak, Benjamin Miranda and Teixeira, Anderson Mutter (2019): Heterogeneous effects of the implementation of macroprudential policies on bank risk.

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Abstract

In this article, we analyze the effect of a set of 12 macroprudential policies on the risk-taking of banks using a large number of countries and banks. Our empirical results show that, although on average these policies reduce risk-taking, the effects are quite heterogeneous and vary considerably depending on the instrument implemented, market concentration, size of banks, liquidity, leverage and different levels of risk. Structural policies, such as limits on asset concentration and interbank exposures, are the most effective in terms of financial stability. Borrower based policies, such as loan-to-value and debt-to-income ratios, also have a positive effect on stability. Concentration limits tend to be more effective for larger and more leveraged banks, while loan-to-value and debt-to-income ratios are more effective in concentrated markets. We also show that there seems to be a greater effect through the leverage channel for policies that are most effective in reducing risk-taking.

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