Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements

45 Pages Posted: 28 Aug 2023 Last revised: 29 Aug 2023

See all articles by Cecilia Dassatti

Cecilia Dassatti

Central Bank of Uruguay

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Francesc Rodriguez Tous

Bayes Business School

Sergio Vicente

University of Luxembourg

Date Written: August 26, 2023

Abstract

We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital inflow boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks leads to a reduction in the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure to riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies.

JEL Classification: E51, E52, F38, G21, G28

Suggested Citation

Dassatti, Cecilia and Peydro, Jose-Luis and Rodriguez Tous, Francesc and Vicente, Sergio, Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements (August 26, 2023). Available at SSRN: https://ssrn.com/abstract=4552616 or http://dx.doi.org/10.2139/ssrn.4552616

Cecilia Dassatti

Central Bank of Uruguay ( email )

Diagonal Fabini 777
Montevideo, CP 11100
Uruguay

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Francesc Rodriguez Tous (Contact Author)

Bayes Business School ( email )

106 Bunhill Row
106 Bunhill Row
London, EC1Y 8TZ

Sergio Vicente

University of Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

HOME PAGE: http://www.sergiovicente.com

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