Cross-Border Effects of Regulatory Spillovers: Evidence from Mexico
63 Pages Posted: 1 Nov 2017
Date Written: October 20, 2017
I study the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan-demand by the non-tradable sector to changes in household credit supply range from 1.6–3.5. These results emphasize the potential for cross-border effects of regulations in the presence of global banks.
Keywords: Regulatory Spillovers, Capital Shock, Household Credit
JEL Classification: F36, F42, G21
Suggested Citation: Suggested Citation