The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies

Kristin Forbes, Dennis Reinhardt and Tomasz Wieladek

No 44, Discussion Papers from Monetary Policy Committee Unit, Bank of England

Abstract: Have bank regulatory policies and unconventional monetary policies — and any possible interactions — been a factor behind the recent ‘deglobalisation’ in cross-border bank lending? To test this hypothesis, we use bank-level data from the United Kingdom — a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the United Kingdom’s Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on external lending. Quantitative easing may also have had an amplification effect, but these estimates are usually insignificant and smaller in magnitude. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the contraction globally. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending.

Keywords: Capital requirements; Funding for Lending Scheme; financial deglobalisation (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-01-22
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies (2017)
Working Paper: The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mpc:wpaper:0044

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