The macroeconomic impact of shocks to bank capital buffers in the Euro Area
-
Derrick Kanngiesser
Abstract
While the global financial crisis revealed a need for macroprudential policy tools to mitigate the build-up of risk in the financial system, the impact of such policies on the banking sector and the macroeconomy remains largely uncertain. We contribute to the empirical literature that estimates the impact of shocks to bank capital buffers on bank lending and the macroeconomy by estimating a Bayesian VAR model identified with sign restrictions. We use bank-level data for large euro area listed banks to construct an aggregate bank capital buffer for the euro area, which is included as another variable in the model. We estimate three shocks affecting the euro area economy, namely a demand shock, a monetary policy shock and a shock to bank capital buffers. We find that banks curtail lending and reduce their relative exposure to riskier assets in response to a shock to the bank capital buffer. Historical shock decomposition analysis shows that shocks to bank capital buffers have contributed to impair bank lending growth and to widen bank lending spreads, hence depressing economic activity.
References
Aiyar, S., C. W. Calomiris, and T. Wieladek. 2014. “Does Macro-Prudential Regulation Leak? Evidence from a U.K. policy experiment.” Journal of Money, Credit and Banking 46 (1): 181–2014.10.1111/jmcb.12086Suche in Google Scholar
Ayuso, J., D. Pérez, and J. Saurina. 2004. “Are Capital Buffers Procyclical? Evidence from Spanish Panel Data.” Journal of Financial Intermediation 13: 249–264.10.1016/S1042-9573(03)00044-5Suche in Google Scholar
Banbura, M., D. Giannone, and L. Reichlin. 2010. “Large Bayesian Vector Auto Regressions.” Journal of Applied Econometrics 25: 71–92.10.1002/jae.1137Suche in Google Scholar
Barnett, A., and R. Thomas. 2013. “Has Weak Lending and Activity in the United Kingdom been Driven by Credit Supply Shocks?” Working Paper, No. 482, Bank of England.10.2139/ssrn.2370460Suche in Google Scholar
Bassett, W. F., M. B. Chosak, J. C. Driscoll, and E. Zakrajsek. 2014. “Changes in Bank Lending Standards and the Macroeconomy.” Journal of Monetary Economics 62: 23–40.10.1016/j.jmoneco.2013.12.005Suche in Google Scholar
Basten, C., and C. Koch. 2015. “Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Countercyclical Capital Buffer (CCB).” BIS Working Papers, No 511, September.10.2139/ssrn.2473622Suche in Google Scholar
Bernanke, B. S., and C. S. Lown. 1991. “The Credit Crunch.” Brookings Papers on Economic Activity, No. 2, Broookings Institution, 205–239.10.2307/2534592Suche in Google Scholar
Berrospide, J. M., and R. M. Edge. 2010. “The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?” International Journal of Central Banking 6: 5–54. .10.2139/ssrn.1895532Suche in Google Scholar
Bridges, J., D. Gregory, M. Nielsen, S. Pezzini, A. Radia, and M. Spaltro. 2014. “The Impact of Capital Requirements on Bank Lending.” Working Paper, No. 486, Bank of England.10.2139/ssrn.2388773Suche in Google Scholar
Drehmann, M., C. Borio, and K. Tsatsaronis. 2011. “Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates.” International Journal of Central Banking 7 (4): 189–240.Suche in Google Scholar
ECB. 2015. “The Transmission of the ECB’s Recent Non-Standard Monetary Policy Measures.” Economic Bulletin, ECB (7).Suche in Google Scholar
Francis, W., and M. Osborne. 2009. “Bank Regulation, Capital and Credit Supply: Measuring the Impact of Prudential Standards.” Occasional Paper Series, No. 36, U.K. Financial Services Authority, London.Suche in Google Scholar
Gambetti, L., and A. Musso. 2017. “Loan Supply Shocks and the Business Cycle.” Journal of Applied Econometrics 32: 764–782.10.1002/jae.2537Suche in Google Scholar
Gropp, R., T. Mosk, S. Ongena, and C. Wix. 2016. “Bank Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment.” Working Paper, No. 156, SAFE Working Paper Series, Goethe University Frankfurt.10.2139/ssrn.2877771Suche in Google Scholar
Kok, C., M. Gross, and D. Zochowski. 2015. “The Impact of Bank Capital on Economic Activity - Evidence from a Mixed-Cross-Section GVAR model.” Working Paper Series 1888, European Central Bank.10.2139/ssrn.2769909Suche in Google Scholar
Hancock, D., A. J. Laing, and J. A. Wilcox. 1995. “Bank Capital Shocks: Dynamic Effects on Securities, Loans, and Capital.” Journal of Banking & Finance 19: 661–677.10.1016/0378-4266(94)00147-USuche in Google Scholar
Hanson, S. G., A. K. Kashyap, and J. C. Stein. 2011. “A Macroprudential Approach to Financial Regulation.” Journal of Economic Perspectives 25 (1): 3–28.10.1257/jep.25.1.3Suche in Google Scholar
Hristov, N., O. Hülsewig, and T. Wollmershäuser. 2012. “Loan Supply Shocks During the Financial Crisis: Evidence for the Euro Area.” Journal of International Money and Finance 31: 569–592.10.1016/j.jimonfin.2011.10.007Suche in Google Scholar
Jiménez, G., S. Ongena, J.-L. Peydro, and J. Saurina. 2017. “Macroprudential Policy, Countercyclical Bank Capital Buffers, and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments.” Journal of Political Economy 125: 2126–2177.10.1086/694289Suche in Google Scholar
Jokipii, T., and A. Milne. 2008. “The Cyclical Behaviour of European Bank Capital Buffers.” Journal of Banking and Finance 32: 1440–1451.10.1016/j.jbankfin.2007.12.001Suche in Google Scholar
Kok, C., R. Martin, D. Moccero, and M. Sandstroem. 2014. “Recent Experience of European Countries with Macroprudential Policy.” Financial Stability Review European Central Bank, 113–126.Suche in Google Scholar
Lown, C., and D. P. Morgan. 2006. “The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey.” Journal of Money, Credit and Banking 37 (6): 1575–1597.10.1353/mcb.2006.0086Suche in Google Scholar
Maurin, L., and M. Toivanen. 2012. “Risk, Capital Buffer and Bank Lending: A Granular Approach to the Adjustment of Euro Area Banks.” Working Paper, No. 1499, European Central Bank, Frankfurt am Main.10.2139/ssrn.2179779Suche in Google Scholar
Meeks, R. 2017. “Capital Regulation and Macroeconomic Activity: Implications for Macroprudential Policy.” European Economic Review 95: 125–141.10.1016/j.euroecorev.2017.03.010Suche in Google Scholar
Mésonnier, J.-S., and A. Monks. 2015. “Did the EBA Capital Exercise Cause a Credit Crunch in the Euro Area?” International Journal of Central Banking 11 (3): 75–117.10.2139/ssrn.2451019Suche in Google Scholar
Mésonnier, J.-S., and D. Stevanovic. 2017. “The Macroeconomic Effects of Shocks to Large Banks’ Capital.” Oxford Bulletin of Economics and Statistics 79 (4): 546–569.10.1111/obes.12162Suche in Google Scholar
Moccero, D., M. Darracq Paries, and L. Maurin. 2014. “Financial Conditions Index and Identification of Credit Supply Shocks for the Euro Area.” International Finance 17 (3): 297–321.10.1111/infi.12056Suche in Google Scholar
Mora, N., and A. Logan. 2012. “Shocks to Bank Capital: Evidence from UK Banks at Home and Away.” Applied Economics 44: 1103–1119.10.1080/00036846.2010.537639Suche in Google Scholar
Mumtaz, H., G. Pinter, and K. Theodoridis. 2015. “What do VARs Tell Us about the Impact of a Credit Supply Shock? An Empirical Analysis.” Working Paper, No. 716, Queen Mary University of London.Suche in Google Scholar
Noss, J., and P. Toffano. 2016. “Estimating the Impact of Changes in Aggregate Bank Capital Requirements During an Upswing.” Journal of Banking and Finance 62: 15–27.10.1016/j.jbankfin.2015.09.020Suche in Google Scholar
Peek, J., and E. S. Rosengren. 1995. “The Capital Crunch: Neither a Borrower nor a Lender Be.” Journal of Money, Credit and Banking 27 (3): 625–638.10.2307/2077739Suche in Google Scholar
Peek, J., and E. S. Rosengren. 1997. “The International Transmission of Financial Shocks: The Case of Japan.” The American Economic Review 87 (4): 495–505.10.2139/ssrn.36583Suche in Google Scholar
Puri, M., J. Rocholl, and S. Steffen. 2011. “Global Retail Lending in the Aftermath of the U.S. Financial Crisis: Distinguishing between Supply and Demand Effects.” Journal of Financial Economics 100: 556–578.10.1016/j.jfineco.2010.12.001Suche in Google Scholar
Rubio-Ramírez, J. F., D. F. Waggoner, and T. Zha. 2010. “Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference.” Review of Economic Studies 77: 665–696.10.1111/j.1467-937X.2009.00578.xSuche in Google Scholar
Watanabe, W. 2007. “Prudential Regulation and the ‘Credit Crunch’: Evidence from Japan.” Journal of Money, Credit and Banking 39 (2-3): 639–665.10.1111/j.0022-2879.2007.00039.xSuche in Google Scholar
Woo, D. 2003. “In Search of ‘Capital Crunch’: Supply Factors behind the Credit Slowdown in Japan.” Journal of Money, Credit and Banking 35 (6): 1019–1038.10.1353/mcb.2003.0050Suche in Google Scholar
Wu, J. C., and F. D. Xia. 2016. “Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound.” Journal of Money, Credit and Banking 48 (2-3): 253–291.10.1111/jmcb.12300Suche in Google Scholar
Supplementary Material
The online version of this article offers supplementary material (DOI: https://doi.org/10.1515/bejm-2018-0009).
©2020 Walter de Gruyter GmbH, Berlin/Boston
Artikel in diesem Heft
- Contributions
- An empirical study on the New Keynesian wage Phillips curve: Japan and the US
- Risk averse banks and excess reserve fluctuations
- Advances
- Signaling in monetary policy near the zero lower bound
- Contributions
- Robust learning in the foreign exchange market
- Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
- Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
- Agency costs and the monetary transmission mechanism
- Advances
- Optimal monetary policy in a model of vertical production and trade with reference currency
- The financial accelerator and marketable debt: the prolongation channel
- The welfare cost of inflation with banking time
- Prospect Theory and sentiment-driven fluctuations
- Contributions
- Household borrowing constraints and monetary policy in emerging economies
- The macroeconomic impact of shocks to bank capital buffers in the Euro Area
- The effects of monetary policy on input inventories
- The welfare effects of infrastructure investment in a heterogeneous agents economy
- Advances
- Collateral and development
- Contributions
- Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
- Is unemployment on steroids in advanced economies?
- Monitoring and coordination for essentiality of money
- Dynamics of female labor force participation and welfare with multiple social reference groups
- Advances
- Technology and the two margins of labor adjustment: a New Keynesian perspective
- Contributions
- Changing demand for general skills, technological uncertainty, and economic growth
- Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
- Fiscal policy and the output costs of sovereign default
- Animal spirits in an open economy: an interaction-based approach to the business cycle
- Ramsey income taxation in a small open economy with trade in capital goods
Artikel in diesem Heft
- Contributions
- An empirical study on the New Keynesian wage Phillips curve: Japan and the US
- Risk averse banks and excess reserve fluctuations
- Advances
- Signaling in monetary policy near the zero lower bound
- Contributions
- Robust learning in the foreign exchange market
- Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
- Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
- Agency costs and the monetary transmission mechanism
- Advances
- Optimal monetary policy in a model of vertical production and trade with reference currency
- The financial accelerator and marketable debt: the prolongation channel
- The welfare cost of inflation with banking time
- Prospect Theory and sentiment-driven fluctuations
- Contributions
- Household borrowing constraints and monetary policy in emerging economies
- The macroeconomic impact of shocks to bank capital buffers in the Euro Area
- The effects of monetary policy on input inventories
- The welfare effects of infrastructure investment in a heterogeneous agents economy
- Advances
- Collateral and development
- Contributions
- Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
- Is unemployment on steroids in advanced economies?
- Monitoring and coordination for essentiality of money
- Dynamics of female labor force participation and welfare with multiple social reference groups
- Advances
- Technology and the two margins of labor adjustment: a New Keynesian perspective
- Contributions
- Changing demand for general skills, technological uncertainty, and economic growth
- Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
- Fiscal policy and the output costs of sovereign default
- Animal spirits in an open economy: an interaction-based approach to the business cycle
- Ramsey income taxation in a small open economy with trade in capital goods
