Macroprudential Regulation and Sector-Specific Default Risk

36 Pages Posted: 27 Jul 2022

See all articles by Mohamed Belkhir

Mohamed Belkhir

International Monetary Fund (IMF)

Sami Ben Naceur

International Monetary Fund (IMF)

Bertrand Candelon

Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Jean-Charles Wijnandts

Bank of England

Date Written: July 1, 2022

Abstract

This paper studies the transmission of macroprudential policies across both financial and non financial sectors of the economy. It first documents that tighter macroprudential regulations implemented in Europe over the period 2008–2017 lowered default risk not only in the financial, but also in non-financial sectors. Second, the paper analyzes the impact of two reforms in the macroprudential framework. Higher capital requirements improve the long-run resilience of the financial sector but at the cost of raising long-term default risk in non-financial sectors. Strengthening the resolution framework for failing banks has beneficial long-run effects on the default risks of the financial and non-financial sectors. Our results concur with the literature documenting how banks adjust their balance sheet composition and credit supply in reaction to changes in their regulatory environment.

Keywords: Macroprudential regulation, Default risk, Capital requirements, Bank bail-in

JEL Classification: C33, G01, G28

Suggested Citation

Belkhir, Mohamed and Ben Naceur, Sami and Candelon, Bertrand and Wijnandts, Jean-Charles, Macroprudential Regulation and Sector-Specific Default Risk (July 1, 2022). IMF Working Paper No. 2022/141, Available at SSRN: https://ssrn.com/abstract=4171847

Mohamed Belkhir (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Sami Ben Naceur

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Bertrand Candelon

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

34 Voie du Roman Pays - L1.03.01
Louvain-la-Neuve, 1348
Belgium

Jean-Charles Wijnandts

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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