Effects of Credit Restrictions in the Netherlands and Lessons for Macroprudential Policy

35 Pages Posted: 12 May 2020

See all articles by Gabriele Galati

Gabriele Galati

De Nederlandsche Bank

Jan Kakes

De Nederlandsche Bank - Monetary and Economic Policy Department

Richhild Moessner

Bank for International Settlements (BIS)

Date Written: March 27, 2020

Abstract

Credit restrictions were used as a monetary policy instrument in the Netherlands from the 1960s to the early 1990s. We study the effects of credit restrictions being active on the balance sheet structure of banks and other financial institutions. We find that banks mainly responded to credit restrictions by making adjustments to the liability side of their balance sheets, particularly by increasing the proportion of long-term funding. Responses on the asset side were limited, while part of the banking sector even increased lending after the installment of a restriction. These results suggest that banks and financial institutions responded by switching to long-term funding to meet the restriction and shield their lending business. Arguably, the credit restrictions were therefore still effective in reaching their main goal, i.e. containing money growth.

Keywords: Credit restrictions, Monetary polic, Macroprudential policy

JEL Classification: E42, E51; E52, E58, G28

Suggested Citation

Galati, Gabriele and Kakes, Jan and Moessner, Richhild, Effects of Credit Restrictions in the Netherlands and Lessons for Macroprudential Policy (March 27, 2020). De Nederlandsche Bank Working Paper No. 679, Available at SSRN: https://ssrn.com/abstract=3597992 or http://dx.doi.org/10.2139/ssrn.3597992

Gabriele Galati (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Jan Kakes

De Nederlandsche Bank - Monetary and Economic Policy Department ( email )

Westeinde 1
1017 ZN Amsterdam
Netherlands

Richhild Moessner

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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