Macroprudential Policy Spillovers in International Banking Groups. Beggar-Thy-Neighbour and the Role of Internal Capital Markets

47 Pages Posted: 4 Aug 2023

See all articles by Aurea Ponte Marques

Aurea Ponte Marques

European Central Bank (ECB)

Giuseppe Cappelletti

European Central Bank (ECB)

Carmelo Salleo

European Central Bank (ECB)

Diego Vila

University of Amsterdam

Multiple version iconThere are 2 versions of this paper

Abstract

Beggar-thy-neighbour in macroprudential policy? To answer this question, we exploit a confidential dataset, including a large set of banking groups operating in the euro area and abroad, which are subject to additional capital buffers (OSII buffers). This paper studies the impact of macroprudential policy on bank lending and presents the first evidence on whether banking groups respond to changes in capital buffers by adjusting their resources through their internal capital markets. Our findings suggest that imposing higher capital requirements on a (parent) banking group triggers a shift in the group’s internal funding and resources, where subsidiaries cut down their lending and risk-taking and parents reduce their funding (in terms of liquidity) to subsidiaries. Our results suggest that it is crucial for policymakers to consider potential spillover effects of macroprudential policies on banking groups to trace out the aggregate economic impact.

Keywords: Macroprudential policy, Spillovers, International banking, lending, risk-taking, Internal capital markets

Suggested Citation

Ponte Marques, Aurea and Cappelletti, Giuseppe and Salleo, Carmelo and Vila, Diego, Macroprudential Policy Spillovers in International Banking Groups. Beggar-Thy-Neighbour and the Role of Internal Capital Markets. Available at SSRN: https://ssrn.com/abstract=4531617 or http://dx.doi.org/10.2139/ssrn.4531617

Aurea Ponte Marques (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giuseppe Cappelletti

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Carmelo Salleo

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Diego Vila

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

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