Do Macroprudential and Monetary Policies Interact in Shaping Bank Stability? International Evidence

Abstract

In recent years, numerous countries around the globe have adopted macroprudential policies. However, the understanding of these policies and how exactly they impact the banking industry remains limited. Using a sample of 1,534 banks from 57 countries, we examine whether and how macroprudential and monetary policies interact in shaping bank stability. The results show that the positive impact of macroprudential policies on bank stability is enhanced in countries with higher central bank policy rates. Additional analysis reveals that this result is driven by financial institution-targeted instruments rather than borrower-targeted ones. These findings are robust to the use of various bank-level and country-level control variables, alternative indicators of bank-risk, and methodological approaches.

Keywords: Bank risk, Macroprudential policy, Monetary policy

JEL Classification: G21, G28