Abstract

https://ssrn.com/abstract=2728405
 


 



The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies


Kristin J. Forbes


Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Bank of England - Monetary Policy Committee

Dennis Reinhardt


Bank of England

Tomasz Wieladek


Bank of England

February 1, 2016

MIT Sloan Research Paper No. 5163-16

Abstract:     
Have bank regulatory policies and unconventional monetary policies — and any possible interactions — been a factor behind the recent “deglobalisation” in cross-border bank lending? To test this hypothesis, we use bank-level data from the UK — a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the UK’s Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on external lending. QE may also have had an amplification effect, but these estimates are usually insignificant and smaller in magnitude. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the contraction globally. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending.

Number of Pages in PDF File: 50

Keywords: Capital requirements, Funding for Lending Scheme, financial deglobalisation

JEL Classification: G21, G28


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Date posted: February 8, 2016  

Suggested Citation

Forbes, Kristin J. and Reinhardt, Dennis and Wieladek, Tomasz, The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies (February 1, 2016). MIT Sloan Research Paper No. 5163-16. Available at SSRN: https://ssrn.com/abstract=2728405 or http://dx.doi.org/10.2139/ssrn.2728405

Contact Information

Kristin J. Forbes (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
Room E62-416
Cambridge, MA 02142
United States
617-253-8996 (Phone)
HOME PAGE: http://web.mit.edu/kjforbes/www

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Bank of England - Monetary Policy Committee ( email )
Threadneedle Street
London EC2R 8AH
United Kingdom
Dennis Reinhardt
Bank of England ( email )
Threadneedle Street
London, EC2R 8AH
United Kingdom
Tomasz Wieladek
Bank of England ( email )
Threadneedle Street
London, EC2R 8AH
United Kingdom
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