Evaluating the Impact of Macroprudential Policies on Credit Growth in Colombia

28 Pages Posted: 7 Jun 2017

See all articles by Esteban Gómez

Esteban Gómez

Banco de la Repúblic - Financial Stability Department

Angélica Lizarazo

Banco de la República - Financial Stability Department

Juan Carlos Mendoza

Banco de la República - Financial Stability Department

Andrés Murcia

Banco de la República

Date Written: May 2017

Abstract

Macroprudential tools have been used around the world to counter potential risks and imbalances in the financial sector. Colombia is a good example of a country that has employed a variety of regulatory measures to manage systemic risks in the economy. The purpose of this paper is to evaluate the effectiveness of two such policies with a view to increasing systemic resilience and curbing excesses in the credit supply. The first measure, the countercyclical reserve requirement, was implemented in 2007 to control excessive credit growth. The second was the dynamic provisioning scheme for commercial loans, which was designed to establish a countercyclical buffer through loan loss provision requirements. To perform this analysis, a rich dataset based on loan-by-loan information for Colombian banks during the 2006-09 period is used. A fixed effects panel model is estimated using the characteristics of debtors, banks and the macroeconomy as control variables. In addition, a difference in differences estimation is performed to evaluate the policies' impact. The findings suggest that the dynamic provisions and the countercyclical reserve requirement had a negative effect on credit growth, and that this effect varies according to bank-specific characteristics. Results also suggest that the aggregate macroprudential policy stance in Colombia has worked effectively to stabilize credit cycles, with some preliminary evidence also pointing towards significant effects in reducing bank risk-taking. Moreover, evidence is found that macroprudential policies have worked as a complement to monetary policy, as both have a moderating effect on credit growth when tightened.

Paper produced as part of the BIS Consultative Council for the Americas (CCA) research project on "The impact of macroprudential policies: an empirical analysis using credit registry data" implemented by a Working Group of the CCA Consultative Group of Directors of Financial Stability (CGDFS).

Keywords: Macroprudential policies, reserve requirements, credit growth, dynamic provisioning, credit registry data

JEL Classification: E58, G28, C23

Suggested Citation

Gómez, Esteban and Lizarazo, Angélica and Mendoza, Juan Carlos and Murcia, Andrés, Evaluating the Impact of Macroprudential Policies on Credit Growth in Colombia (May 2017). BIS Working Paper No. 634, Available at SSRN: https://ssrn.com/abstract=2966864

Esteban Gómez (Contact Author)

Banco de la Repúblic - Financial Stability Department ( email )

Colombia

Angélica Lizarazo

Banco de la República - Financial Stability Department ( email )

Colombia

Juan Carlos Mendoza

Banco de la República - Financial Stability Department ( email )

Colombia

Andrés Murcia

Banco de la República ( email )

Carrera 7 #14-78
3551 de Bogotá
Colombia

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