Macroprudential policy spillovers

: do capital buffers influence non-bank financial intermediation in the Euro area?

Abstract

The heightened regulation on banks prompts the question of if and how non-banks are affected by it, especially if there is the possibility of non-banks acting as a substitute source of funding and thus decrease the effectiveness of a policy. While this effect has been studied for other types of policy, the literature on macroprudential policy and regulatory arbitrage is still scarce. To shed light on this topic, I study how macroprudential capital buffers affect non-bank credit. I focus only on capital-based measures as they apply exclusively to banks, while borrower based measures can and have been applied to non-banks as well, i.e., they do not create regulatory differences between these two sectors. I contribute to the existing literature by using a new definition of non-banks, comprising of investment funds and other financial institutions, and by building a new measure of macroprudential policy intensity, which weights the capital requirements by the exposures they cover. I find that macroprudential shocks are not associated with spillovers to non-bank lending, and this result is robust for different specifications of the model.

Date of Award	10 May 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)