Credit Supply Responses to Reserve Requirement: Loan-Level Evidence from Macroprudential Policy

41 Pages Posted: 11 Dec 2017

See all articles by Joao Barroso

Joao Barroso

Banco Central do Brasil

Rodrigo Gonzalez

Banco Central do Brasil; Bank of International Settlements

Bernardus Ferdinandus Nazar Van Doornik

Government of the Federative Republic of Brazil - Central Bank of Brazil

Date Written: November 1, 2017

Abstract

This paper estimates the impact of reserve requirements (RR) on credit supply in Brazil, exploring a large loan-level dataset. We use a difference-in-difference strategy, first in a long panel, then in a cross-section. In the first case, we estimate the average effect on credit supply of several changes in RR from 2008 to 2015 using a macroprudential policy index. In the second, we use the bank-specific regulatory change to estimate credit supply responses from (1) a countercyclical easing policy implemented to alleviate a credit crunch in the aftermath of the 2008 global crisis; and (2) from its related tightening. We find evidence of a lending channel where more liquid banks mitigate RR policy. Exploring the two phases of countercyclical policy, we find that the easing impacted the lending channel on average two times more than the tightening. Foreign and small banks mitigate these effects. Finally, banks are prone to lend less to riskier firms.

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: Reserve requirement, credit supply, capital ratio, liquidity ratio, macroprudential policy

JEL Classification: E51, E52, E58, G21, G28

Suggested Citation

Barroso, Joao and Gonzalez, Rodrigo and Doornik, Bernardus Ferdinandus Nazar Van, Credit Supply Responses to Reserve Requirement: Loan-Level Evidence from Macroprudential Policy (November 1, 2017). BIS Working Paper No. 674, Available at SSRN: https://ssrn.com/abstract=3076236

Joao Barroso (Contact Author)

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Rodrigo Gonzalez

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Bank of International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Bernardus Ferdinandus Nazar Van Doornik

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

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