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Using data from Italian banks over the period 2011–2017, we study how negative interest rate policy and prudential regulation impact on bank business models. We report four key findings. First, banks shifted into retail- and market-oriented business models. Second, high- and low-deposit banks reduced loans and increased security/liquid assets; only market-oriented banks expanded lending. Third, interest rate income compression induced by negative rates has been substantial for the Italian banking system as a whole, although retail banks seem to have suffered less. Fourth, non-interest incomes played a compensatory effect. The portfolio reshuffling, as we observed for wholesale and retail banks (less lending and more securities/liquid assets), is related to the goal of reducing risk exposures and, in turn, the connected capital absorption required by prudential regulation.

This paper examines whether the increased use of macroprudential policies since the global financial crisis has affected the impact of (euro-area and foreign) monetary policy on mortgage lending in Ireland and the Netherlands, which are both small open economies in the euro area. Using quarterly bank-level data on domestic lending in both countries for 2003-2018, we find that restrictive euro-area monetary policy shocks reduce the growth of mortgage lending. We find evidence that stricter domestic prudential regulation mitigates this effect in Ireland, but not so in the Netherlands. There is some weak evidence for an international bank lending channel that can be mitigated by stricter lender-based domestic prudential regulation.

Since the recent financial crisis along with more concentration of banking supervision, we have stepped into a new regulatory regime where multiple regulations are at play simultaneously. In this paper, we study the collective impacts of multiple regulations on credit creation in a heterogeneous banking system. Each single regulation imposes a constraint on credit creation for each bank, while with multiple regulations, only the most stringent one plays the determinant role on money supply. For the homogeneous banking system with identical balance sheets, they share the same binding regulation. In contrast, for the heterogeneous banking system with diverse balance sheets, the binding regulation for each bank may be different from other's. Those banks, who are bound by different regulatory constraints from homogeneous banks, would bring about an overall reduction in money supply, because those binding regulations impose a lower capacity (compared with the one in the case of homogeneous banks) for the banks to extend their balance sheets in this condition. We put forward an agent-based model of commercial banks integrated with two processes: credit creation and fund transfer, to demonstrate the reduction effect. The results facilitate the understandings of the transmission mechanism of monetary policy via banks and its interaction with prudential regulations.

International audience; Between 2010 and 2012 and with bank stability as the ultimate target, five European countries implemented a tax levy on banks’ liabilities thereby decreasing the cost of equity relative to the cost of debt. Using a difference-in-differences approach we assess the impact of this tax levy on banks’ participation in the syndicated loan market. We further investigate the impact of the tax levy along bank size and capital structure. We find that banks located in countries where the tax levy was implemented supply more credit. This increase is more significant for larger lenders and banks that are more capital constrained.

This paper analyses the effects of prudential policies on leverage and insolvency risk in eleven Central and Eastern Europe banking systems in the 2005–2014 period. It explores the relationship between leverage, insolvency risk and regulation variables, and the temporal patterns of this relationship. It also examines whether the effects of prudential policies on leverage and insolvency risk are influenced by bank ownership structure and financial cycle. The paper finds a consistent link between prudential regulation and leverage, which varies over the sample period. Conversely, the insolvency risk shows a stronger relationship with macroprudential policies. The estimates reveal that prudential policies work better on leverage and z-score for foreign banks. Both leverage and insolvency risk are better mitigated over booms. Finally, prudential policies have similar effects on both domestic and foreign banks' stability in normal times, while the effects are opposite during turbulences. These dissimilarities are raising challenges to the conduct of prudential policies.

We analyze the relationship between ECB monetary policy and prudential policies in the host country and international lending by Dutch insurers and pension funds, using confidential institution-specific data. Our results suggest that insurers and pension funds do not significantly change their foreign lending in response to ECB policy changes, proxied by a shadow rate capturing both conventional and unconventional monetary policies. However, our findings suggest that these financial institutions do increase foreign lending when banks in the host country are more constrained by prudential regulation, pointing to a substitution effect from banks to non-banks.

Despite achieving success in the tight prudential regulation of the banking sector, the Bank of Russia (CB RF) continues to reveal new cases of negative net worth in banks. This paper investigates the influence of banks’ risk-taking and the interest rate policy of the CB RF on the depletion of net worth in Russian credit institutions during 2007—2017. The quartile regression approach is employed to examine the differences in net worth depletion of already failed banks; additionally, the Heckman selection approach is applied to analyze potential negative net worth that has not been revealed by the CB RF yet. The estimation results suggest that banks’ risk-taking matters: its increases are positively associated with the rises of the probability of bank failures and the size of negative net worth, conditional on failure. Ignoring of banks’ risktaking leads to a substantial upward bias in the estimates of the total size of negative net worth in the banking system — from 3.6 to 5.3 trillion rubles, or by 2% of the system’s total assets. Further, the interest rate policy of the CB RF has a risk-shifting effect: an increase of the key rate together with a rise of its volatility are associated with a further depletion of banks’ net worth. Finally, the paper shows that a joint increase in banks’ risk-taking and the key rate has a further negative effect on banks’ net worth.

This paper empirically tests the theories concerning bank lending, economic policy uncertainty (EPU), and national prudential regulations. Using bank level data in 19 major economies, we find that EPU significantly hinders the growth of bank credit, but the effect varies across banks. In particular, the negative effect of EPU on loan growth is greater for larger-sized banks and riskier banks, while weaker for more liquid banks and more diversified banks. In addition, the impact of EPU on bank lending depends critically on national prudential regulations, such that the negative effect appears to be alleviated by both macroprudential and microprudential policies.

One of the objectives of the recent prudential regulation is to separate the computation of required capital for short- and long-run risks. This paper provides a coherent framework to define, compute, and update these components. We provide different examples, among which is the transition to low carbon economies.

Basel III introduced unweighted capital standard and new regulatory liquidity standards to complement the revised risk-weighted capital requirements. This change in banking sector regulation raised questions on how the capital and liquidity requirements interact and how they should be jointly treated. In the paper, we assess how a regulatory and a subsequent economic shock, and banks’ subsequent response to it, affects compliance with the four regulatory requirements. We find that the capital and liquidity requirements can act as both, substitutes and complements, depending on the adjustment strategy banks choose to react to these shocks. We assert that to be able to properly calibrate macroprudential policy measures such as the counter-cyclical capital buffer, it is vital for macroprudential authorities to look at the initial levels of the other required ratios as well as to monitor banks’ subsequent response.

Since the last financial crisis, the financial system has taken and continues to be on guard against these unexpected shocks. In this direction, this article focused with these decision-makers as well as his researchers on a more advanced macroeconomic modeling, based on the integration of different hazards (economic, social, cultural, environmental…), the concept of micro-foundations, of the different types of imperfect competition accompanied by some price rigidities. We are proposing a new Dynamic Stochastic General Equilibrium (DSGE) model tailored to the banking sector in Tunisia. Our model captures the role played by prudential regulations in correcting fluctuations in the business cycle and restoring macroeconomic and financial stability.

This paper runs a survey across seventeen countries from Latin American and the Caribbean about the use, implementation characteristics and policy motivations of limits and requirements on FX positions, as well as the exchange rate regimes of these economies over 1992-2012. Among other novel stylized facts, we show that when referring to policy motivations, national authorities linked their regulatory measures mostly to currency mismatches and fluctuations of the exchange rate, and this pattern was clearer for the more flexible exchange rate regimes adopted in the aftermath of the currency crisis of the 1990s and early 2000s. Thus, we use the survey and the synthetic control method to show that changes in limits and requirements on FX positions affected fluctuations of the exchange rate.

Post-crisis, macro-prudential ideas have challenged the epistemic authority of private risk management technologies, declaring them to be pro-cyclical contributors to systemic risk. This discursive challenge has been most critical of the shadow banking system, where private risk management instruments are central. This challenge, however, has not been translated into regulatory tools which reflect these convictions. This paper studies this process of discursive challenge to (failed) regulatory intervention for the case of the repo-market, the heart of the current shadow banking system. It traces regulatory efforts on the global and EU level from regulatory statements to (lack of) action, documenting both the persistent articulation of macro-prudential ideas challenging private risk-management systems and timid to no regulatory intervention. It links this hiatus to international coordination problems, the need for macro-prudential action to span regulatory communities, involving banking and financial market authorities and disagreements between micro- and macro-prudentially oriented regulators. The lack of evidence and the difficulty to generate it are identified as major impediments for regulatory consensus, further aggravated by ambiguities about the goals of anti-cyclical regulation. Beyond governance problems and the persistent appeal of private risk-management systems, the paper thus points to difficulties operationalizing macro-prudential ideas as a major explanatory factor.

Longer-term mortgages would enhance both consumer choice and financial stability, but regulatory changes are needed to help them develop into a significant part of the Canadian residential mortgage market, says a new report from the C.D. Howe Institute. In “One More Case for Longer-Term Mortgages: Financial Stability,” author Michael K. Feldman notes that according to the Bank of Canada only 2 percent of all Canadian mortgages issued in 2018 were fixed-rate loans with terms of longer than five years. He further suggests that encouraging 10-year or longer mortgages would increase options for borrowers while adding more stability to the housing market.

European supervisors aggressively requested more capital at large banks. That may cut credit to the economy. We confirm that especially larger banks cut loans while less-significant banks partly offset that credit drop. Moreover, we identify nasty spillovers from that interaction. Specifically, larger banks’ deleveraging was associated with significant portfolio worsening for mid-sized banks. We conjecture that while small banks’ loan expansion was somewhat shielded by superior soft-information-based technologies, medium-sized banks were fully exposed to lending to bad borrowers as they boosted loans by relying on credit scoring and Internal Rating Based models. That is proving tricky through the prolonged European dip. Die europaischen Aufsichtsbehorden forderten aggressiv mehr Kapital bei den Grosbanken. Das konnte die Kreditvergabe an die Wirtschaft einschranken. Wir bestatigen, dass vor allem grosere Banken ihre Kredite kurzten, wahrend weniger bedeutende Banken diesen Kreditruckgang teilweise kompensierten. Daruber hinaus identifizieren wir unangenehme Spillovers aus dieser Interaktion. Insbesondere die Deleveraging-Aktivitaten der groseren Banken waren mit einer deutlichen Verschlechterung des Portfolios bei mittelgrosen Banken verbunden. Wir gehen davon aus, dass die Kreditausweitung der kleinen Banken zwar durch uberlegene Soft-Informationstechnologien etwas abgeschirmt war, dass aber mittelgrose Banken voll und ganz der Kreditvergabe an schlechte Kreditnehmer ausgesetzt waren, da sie die Kredite durch Kredit-Scoring und interne ratingbasierte Modelle ausweiteten. Das erweist sich als problematisch durch die anhaltende europaische Krise.

We estimate the causal effect of a mortgage supply expansion on house prices by using an exogenous change in prudential regulation: the abolition in 2006 of a banks' maturity transformation limit. After the repeal of the prudential rule, credit increased only for the banks that were previously constrained by the regulation, while it remained unchanged for the other banks. Such differential response rules out demand-based explanations and fully identify the rule abolition as an exogenous shock that we exploit as an instrument for mortgage supply expansion. We estimate the elasticity of house price growth to new mortgage credit to be close to 5 percent. Our results also show that the effect of a mortgage supply expansion on house prices significantly differs across municipalities' and borrowers' characteristics.

This paper assesses whether compensation practices for bank Chief Executive Officers (CEOs) changed after the Financial Stability Board (FSB) issued post-crisis guidelines on sound compensation. CEO compensation has become more sensitive to risk, with CEOs in the post-reform period at riskier banks receiving less variable compensation than those at less-risky peers. This was particularly true of investment banks. The changes in compensation practices are in line with the FSB’s Principles and Standards of Sound Compensation, although we do not detect significant differences between banks in jurisdictions that directly implemented the FSB guidelines compared to the other banks.

Targeting financial stability has become an important matter for central banks. This objective has considerable impacts on growth and reinforces the economic structure. During the last decades, the financial environment has suffered from different forms of instabilities. Turbulences, crashes, and bubbles are occuring frequently. The ability of modern economies to absorb shocks is questionned since their vulnerability is increasing. This situation is due mainly to the contraction of business cycles, fragility of financial institutions, and corporate debt. Within this scope, volatility clustering in the financial markets has been consistently observed. This paper aims to develop a dynamic system able to detect instantly different instabilities using ABM models. It consists of implementing a strategy-based prevention holistic and integrated.

This paper analyzes the role of financial crises in the financial policy reform process, including the liberalization of the financial system and the strengthening of prudential regulation. This study considers five types of financial crises and seven dimensions of financial policy reform to evaluate the comprehensive relationships between financial crises and financial policy reform by assuming a financial crisis as an endogenous variable. Our work confirms the crisis-begets-reform argument in the context of financial liberalization by showing that all types of financial crises promote financial liberalization even when possible endogeneity problems are addressed. However, financial policy reform following financial crises does not generally include the strengthening of prudential regulation. Given the argument that financial liberalization without prudential regulation often causes financial instability or crises, our findings emphasize that policy makers should pay attention not only to financial liberalization but also to prudential regulation. Moreover, the results show that the origin of a financial crisis matters when financial regulators choose the policy dimensions of financial reform.

Nous etudions les determinants de la dynamique du levier bancaire ainsi que son role dans l’emergence de la fragilite financiere. Nous montrons qu’il existe un niveau de levier qui minimise la fragilite financiere dont la valeur est fonction du climat des affaires et du montant du collateral provisionne par les entreprises endettees. Ces resultats plaident pour la mise en œuvre d’un ratio de levier maximal qui ne serait pas fixe, comme cela est actuellement le cas dans la reglementation prudentielle de Bâle 3, mais ajustable en fonction de la position de l’economie dans le cycle.

This paper explores the interaction between monetary policy and prudential regulation in an agent-based modeling framework. Firms borrow funds from the banking system in an economy regulated by a central bank. The central bank carries out monetary policy, by setting the interest rate, and prudential regulation, by establishing the banking capital requirement. Different combinations of interest rate rule and capital requirement rule are evaluated with respect to both macroeconomic and financial stability. Several relevant policy implications were drawn. First, the efficacy of a given capital requirement rule or interest rate rule depends on the specification of the rule of the other type it is combined with. More precisely, less aggressive interest rate rules perform better when the range of variation of the capital requirement is narrower. Second, interest rate smoothing is more effective than the other interest rate rules assessed, as it outperforms those other rules with respect to financial stability and macroeconomic stability. Third, there is no tradeoff between financial and macroeconomic stability associated with a variation of either the capital requirement or the smoothing interest rate parameter. Finally, our results reinforce the cautionary finding of other studies regarding how output can be ravaged by a low inflation targeting.

We review the recent academic and policy literature on bank loan loss provisioning (LLP) to identify several advances in the literature, to highlight some challenges in LLP research and suggest possible directions for future research with some concluding remarks. Among other things, we observe some major advancement in country-specific and cross-country analyses and substantial interaction between LLPs and existing prudential, accounting, institutional firm characteristic, cultural, religious, tax and fiscal framework. We observe that managerial discretion in provisioning does not necessarily generate LLP estimates that reflect the true and underlying economic reality of banks’ credit risk exposure but rather managerial discretion in provisioning is strongly linked to income smoothing, capital management, signalling and other objectives. We also address several issues including the ethical dimensions of income smoothing, motivations and constrains to income smoothing, methodological issues in the bank loan loss provisions literature and the dynamic loan loss provisioning experiment. Moreover, we suggest several avenues for further research such as: finding a balance between sufficient LLPs which regulators want versus transparent LLPs which standard setters want; the sensitivity of abnormal (specific and general) LLPs to changes in equity; the persistence of abnormal LLPs following CEO exit; country-specific interventions that induce LLP procyclicality in emerging countries; investigating LLP behaviour in the post-financial crisis sample period; the impact of Basel III on banks’ provisioning discretion; LLP behaviour among systemic and non-systemic financial institutions; etc. We conclude that, because provisioning models are only as good as the assumptions underlying such models as well as the accuracy of the inputs included in such models, regulators need to pay attention to how much discretion banks and lending institutions should have in determining reported provision estimates, and this has been a long standing issue.

Purpose This paper aims to highlight some of the more important changes in US prudential regulation and their implications for the operation of large foreign banking organizations (FBOs) in the USA. Design/methodology/approach This paper begins with a summary of the regulatory status of FBOs prior to the crisis. It then discusses developments during the US financial crisis of 2007-2009 that motivated stricter US prudential regulation. The third part discusses some major post-crisis changes in prudential regulation. Finally, the paper considers two areas where important changes in US rules could not be applied in a straightforward manner to FBOs: non-bank financial subsidiaries and branches and agencies. Findings Most of the regulatory changes will enhance US financial stability, albeit in some cases at the cost of weakening FBOs consolidated risk management. However, a few of the regulatory changes have given foreign branches and agencies a significant competitive advantage in US money markets. Originality/value The paper provides an integrated analysis of both the why and the what of changes in US regulation with some discussion of the economic consequences.

This paper presents evidence that extreme negative shocks for the global systemically important banks (GSIBs) are contagious to Australian banks. Our logit regression models predict transmission of adverse extreme shocks in the distance to default (DD) of GSIBs to the Australian banks. While most previous studies consider contagion across national stock markets, we investigate the degree of contagion risk for Australian banks spreading from GSIBs. Our results point to the critical importance for the Australian Prudential Regulation Authority (APRA) (2015 ) to closely observe and monitor developments across the major GSIBs and direct appropriate local policy measures accordingly.

Financial regulation in South Africa changes constantly. In the quest to find the ideal regulatory framework for optimal consumer protection, rules change all the time and international trends have an important influence on lawmakers nationally. The Financial Sector Regulation Bill, also known as the "Twin Peaks" Bill, is the latest invention from the table of the legislature, and some expect this Bill to have far-reaching consequences for the financial services industry. The question is, of course, whether the current dispensation will change so quickly and so dramatically that it will literally be the end of the world as we know it or whether there will be a gradual shift in emphasis away from the so-called silo regulatory approach to an approach that distinguishes between prudential regulation on the one hand and market conduct regulation on the other. A further question is whether insurance as a financial service will change dramatically in the light of the expected twin peak dispensation. The purpose of this paper is to discuss the implications of the FSR Bill for the insurance industry. Instead of analysing the Bill feature for feature, the method that will be used in this enquiry is to identify trends and issues from 2014 and to discuss whether the Twin Peaks model, once implemented, can successfully eradicate similar problems in future. The impact of Twin Peaks will of course have to be tested, but at this point in time it may be very useful to take an educated guess by using recent cases as examples. Recent cases before the courts, the Enforcement Committee and the FAIS Ombud will be discussed not only as examples of the most prevalent issues of the past year or so, but also as examples of how consumer issues and systemic risks are currently being dealt with and how this may change with the implementation of the FSR Bill.Keywords: Insurance; financial services providers; financial sector regulation; Financial Sector Regulation Bill; market conduct; prudential regulation; Twin Peaks; FAIS Ombud; Enforcement Committee; Treating Customers Fairly

The traditional central bank consensus is designed around two mandates: monetary and financial stability. Following the Great Stagflation of the 1970s, central banks’ policy objective became biased toward maintaining a low and stable rate of inflation or monetary stability. This was based on the presumption that a stable price level would achieve both monetary and financial system stability. The deemphasis on financial stability remained until the global financial crisis, when the prevailing consensus was exposed for being thoroughly inadequate. A new consensus has emerged that broadens central banks’ financial stability mandate to include macroprudential supervision. This chapter analyzes the new central bank consensus, how this has resulted in institutional redesign, and the effectiveness of discharging postcrisis financial and monetary stability mandates.

This chapter discusses other regulatory techniques to control bank risk-taking, many of them developed since the global financial crisis of 2007–9. The Basel Committee has now introduced two liquidity standards for banks as internationally harmonising measures: the liquidity coverage ratio and the Net Stable Funding Ratio (NSFR). Besides liquidity management rules, there are other measures of micro-prudential regulation developed or enhanced after the crisis. One is the leverage ratio, which sets an absolute amount of lending banks can engage in, regardless of risk-weighting. Another is large exposures regulation in the EU, which deals with controlling the over-concentration by banks in lending to certain customers. The chapter also looks at systemically important financial institutions that are global banks with such an international footprint that their vulnerabilities may threaten financial systems and economies more acutely than other banks. Moreover, it illustrates the frameworks for stress testing.

This chapter studies capital adequacy regulation, which prescribes that banks can only take certain levels of risk that are supported by adequate levels of capital. In this way, capital adequacy rules provide a form of assurance that banks with adequate levels of capital are likely able to withstand losses that may result from their risk-taking. The Basel Committee developed its first set of capital adequacy standards in the Basel I Capital Accord of 1988. It was subsequently overhauled into the Basel II Capital Accord in 2003. After the global financial crisis of 2007–9, the Basel II Accord’s shortcomings were extensively discussed and the Basel Committee introduced a package of reforms in order to plug the gaps in Basel II. The Basel III package is the most extensive suite of micro-prudential regulation reforms seen to date, as they deal with capital adequacy and a range of other micro-prudential standards.

Demographic developments are unfavourable for the financing of pension schemes in most OECD countries, implying continued growth in pension expenditure in virtually all OECD countries. This chapter examines the vulnerability of pension systems, with an emphasis on financial sustainability and adequacy. Policy trade-offs and complementarities are reviewed and flanking policies, which could underpin successful pension reforms, are examined. Automatic adjustment mechanisms are highlighted, as are the roles of prudential regulation and buffer or reserve funds in the case of shocks.

This article explores the impact of financial market regulation on jobs. It argues that understanding the impact of finance on labor markets is key to an understanding of the trade-off between economic stability and financial sector growth. The article combines information on labor market flows with indicators of financial market development and reforms to assess the implications of financial markets on employment dynamics directly, using information from the International Labour Organization (ILO) datatabse on unemployment flows. On the basis of a matching model of the labor market, it analyses the economic, institutional, and policy determinants of unemployment in- and out-flows. Against a set of basic controls, we present evidence regarding the relationship between financial sector development and reforms and their impact on unemployment dynamics. Using scenario analysis, the article demonstrates the importance of broad financial sector re-regulation to stabilize unemployment inflows and to promote faster employment growth. In particular, we find that encompassing financial sector regulation, had it been in place prior to the global financial crisis in 2008, would have helped a faster recovery in jobs.

We outline the valuation process for a No-Negative Equity Guarantee in an Equity Release Mortgage loan and for an Equity Release Mortgage that has such a guarantee. Illustrative valuations are provided based on the Black ’76 put pricing formula and mortality projections based on the M5, M6 and M7 mortality versions of the Cairns–Blake–Dowd (CBD) family of mortality models. Results indicate that the valuations of No-Negative Equity Guarantees are high relative to loan amounts and subject to considerable model risk but that the valuations of Equity Release Mortgage loans are robust to the choice of mortality model. Results have significant ramifications for industry practice and prudential regulation.

Spanish Abstract: La progresiva y exponencial incursion de Fintech despues de la crisis del 2008 supone la necesidad de un cambio en el enfoque regulatorio en el propio sector financiero. Dentro de los diferentes cambios en el enfoque regulatorio que se requieren para poder afrontar las necesidades y perspectivas de esta realidad disruptiva, el presente articulo se restringe a discutir dos cuestiones en concreto. Por un lado, (i) discutimos y sugerimos los cambios relativos a la regulacion prudencial y la administracion de riesgos financieros que demanda la disrupcion de Fintech, y por otro lado, (ii) senalamos los retos que demanda sugerir un enfoque regulatorio diferencial para diferentes jugadores del mercado. Esto es, sugerimos una regulacion dirigida a entidades financieras convencionales (Fintech 2.0) y al mismo tiempo, una regulacion diferente y adaptada a empresas emergentes y no convencionales o startups (Fintech 3.0). English Abstract: The progressive and exponential incursion of Fintech after the financial crisis of 2008 implies the need for a change in the regulatory approach in the financial sector itself. Within the different changes in the regulatory approach that are required to address the needs and perspectives of this disruptive reality, this paper is restricted to discussing two specific issues. On the one hand, (i) we discuss and suggest some changes relating to prudential regulation and financial risk management required by Fintech's disruption, and on the other hand, (ii) we point out the challenges of taking a differential regulatory approach for different market players. That is, we suggest a regulation aimed at traditional financial institutions (Fintech 2.0) and at the same time, a different regulation adapted to emerging and non-conventional market companies or startups (Fintech 3.0).

This paper examines whether the ECBs consultations, imposed by the SSM Regulation, enhance legitimacy in terms of openness, transparency, inclusiveness, efficacy and judicial accountability. The paper argues that the ECB has, in general, established a solid consultation practice. However, although there is a need for efficacy, the lack of a profound feedback statement, the low participation rate of groups other than the sector actors, and weak judicial review can be considered to constitute its Achilles heel. Thus, while in theory the consultation obligation leads to more throughput legitimacy, reality has turned out to be far more complex.

This paper examines whether the increased use of macroprudential policies since the global financial crisis has affected the impact of (euro area and foreign) monetary policy on mortgage lending in Ireland and the Netherlands, which are both small open economies in the euro area. Using bank-level data on domestic lending in both countries during the period 2003-2018, we find that restrictive euro area monetary policy shocks reduce the growth of mortgage lending. We find evidence that stricter domestic prudential regulation mitigates this effect in Ireland, but not so in the Netherlands. There is weak evidence for an international bank lending channel.

This paper investigates hidden negative capital (HNC) in banks. We develop a simple theoretical model that links HNC to assets charge-offs and shows how product mismatch raises the HNC. In the empirical part, we further test the product mismatch hypothesis using unique data on HNC for U.S. and Russian banks. To address sample selection and endogeneity issues, we apply the Heckman selection approach with instruments. Our results indicate that in both countries product mismatch causes formation of HNC and, conditionally on selection, increases its size. Our results may facilitate improvements in the prudential regulation of banking activities in different countries.

Domestic prudential regulation can have unintended effects across borders and may be less effective in an environment where banks operate globally. Using U.S. micro-banking data for the first quarter of 2000 through the third quarter of 2013, this study shows that some regulatory changes indeed spill over. First, a foreign country's tightening of limits on loan-to-value ratios and local currency reserve requirements increase lending growth in the United States through the U.S. branches and subsidiaries of foreign banks. Second, foreign tightening of capital requirements shifts lending by U.S. global banks away from the country where the tightening occurs to the United States and to other countries. Third, tighter U.S. capital regulation reduces lending by large U.S. global banks to foreign residents.

Since the 2007–2008 global banking crisis, systemic risk has become the central target of policy design in banking regulation in many countries. At the same time, a growing attention has been paid to the systemic importance of bank heterogeneity. The need for diversity has even found its way into official policy documents, both at the European and national level. However, most of the new thinking on the regulatory reforms targeting systemic risk has been conducted within the framework of macro-prudential regulation, which may not be adequate to deal with diversity-related causes of systemic risk. This paper aims, therefore, at contributing to the growing literature on the relationship between systemic risk and banking regulation by (i) explicating the links between systemic risk and banking diversity; (ii) discussing the adequacy of macro and micro-prudential policy instruments to address diversity-related causes of systemic risk in banking; and (iii) laying out a basic framework for diversity-enhancing policies.

The economists have so far paid little attention to the issues of the dollarization of the Russian economy and its financial system. This is inconsistent with the importance of the problem. As part of the solution of the problem of dedollarization the article proposes a proactive approach that involves, in addition to macroeconomic stabilization, changing prudential norms that regulate the banking sector, measures of institutional and fiscal nature which would increase the cost of foreign currency financial intermediation.

This paper explores the joint effects of prudential regulation and monetary policy in a hybrid agent-based-stock-flow-consistent model featuring an agent-based banking sector. The model is calibrated to a deterministic steady state and a subset of its free parameters are subsequently estimated empirically, producing a baseline simulation exhibiting persistent macroeconomic fluctuations. Experiments carried out on this baseline focus in particular on the expectations formation and forecasting mechanisms used by banks in their decision-making. The result is that simple heuristics are remarkably robust in the present model in that most alternative specifications produce little discernible difference in simulation outcomes. Subsequently a range of policy experiments are conducted, showing that a mix of monetary, prudential and fiscal policy is necessary to attenuate the macroeconomic volatility produced by the model.