NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies

Kristin Forbes, Dennis Reinhardt, Tomasz Wieladek

NBER Working Paper No. 22307
Issued in June 2016
NBER Program(s):International Finance and Macroeconomics, Monetary Economics

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 UK—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 UK’s Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on cross-border lending. Quantitative easing did not appear to have a similar effect. 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 global contraction in cross-border lending. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending.

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Document Object Identifier (DOI): 10.3386/w22307

Published: Forbes, Kristin & Reinhardt, Dennis & Wieladek, Tomasz, 2017. "The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 1-22. citation courtesy of

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