CNB WP 5/2021 – Does Macroprudential Policy Leak? Evidence from Non-Bank Credit Intermediation in EU Countries

6. 1. 2022

Martin Hodula, Ngoc Anh Ngo

We examine whether macroprudential policy actions affect shadow bank lending. We use a large dataset covering 23 European Union countries and synthesize a narrow measure of shadow banking focused on capturing credit intermediation by non-banks. To address the endogeneity bias inherent to modelling of the effects of macroprudential policy on the financial sector, we consider a novel index of the macroprudential authority's strength in pursuing its goals and use it to instrument for a macroprudential policy variable in an IV estimation framework. We robustly demonstrate that following a macroprudential policy tightening, shadow bank lending increases. We harness the cross-sectional dimension of our data to show that the effect applies especially to low-capitalized banking sectors, where macroprudential policy is expected to be more binding, leading to credit reallocation from banks to non-banks.

JEL codes: G21, G23, G28

Keywords: European Union, instrumental variables, macroprudential policy, non-bank lending, regulatory leakages

Issued: December 2021

Download: CNB WP No. 5/2021 (pdf, 1.8 MB)