Cross-Border Spillovers from Macroprudential Policy in the Euro Area

Abstract

In the context of the International Banking Research Network (IBRN) project for 2015 (see Buch and Goldberg, 2016), our study aims at understanding and measuring cross-border effects of macroprudential regulation in euro area. Understanding such cross-border spillovers is important for at least three reasons. First, cross-border spillovers may reduce (negative spillovers) or increase (positive spillovers) the efficacy of macro-prudential policy in containing systemic risk. Second, while achieving the same objectives, various macroprudential instruments may differ in the size of cross-border spillovers, calling for the use of the instrument that exerts less cross-border effect, as the European Systemic Risk Board recommends in the European context. Third, cross-border spillovers may increase in magnitude as financial markets and sectors become more integrated, which gradually took place in the euro area after the introduction of the common currency and is likely to be reinforced after the introduction of the banking union, in particular the Single Supervisory Mechanism. Accordingly, understanding and measuring the cross-border impact of macroprudential policy could shed some light on the need for coordination, in particular in the form of reciprocity arrangements, among macroprudential authorities in order to limit negative spillovers and reap the benefits from positive ones.

Full publication: Macroprudential Policy