Can Macroprudential Measures Make Cross-Border Lending More Resilient? Lessons from the Taper Tantrum

Takats, Elod; Temesvary, Judit

doi:10.17016/FEDS.2017.123

Working Paper

Can Macroprudential Measures Make Cross-Border Lending More Resilient? Lessons from the Taper Tantrum

Abstract: We study the effect of macroprudential measures on cross-border lending during the taper tantrum, which saw a strong slowdown of cross-border bank lending to some jurisdictions. We use a novel dataset combining the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with the IBRN?s macroprudential database. Our results suggest that macroprudential measures implemented in borrowers? host countries prior to the taper tantrum significantly reduced the negative effect of the tantrum on cross-border lending growth. The shock-mitigating effect of host country macroprudential rules are present both in lending to banks and non-banks, and are strongest for lending flows to borrowers in advanced economies and to the non-bank sector in general. Source (lending) banking system measures do not affect bilateral lending flows, nor do they enhance the effect of host country macroprudential measures. Our results imply that policymakers may consider applying macroprudential tools to mitigate international shock transmission through cross-border bank lending.

Keywords: Diff-in-diff analysis; Taper tantrum; Cross-border claims; Macroprudential policy;

JEL Classification: F34; F42; G21; G38;

https://doi.org/10.17016/FEDS.2017.123