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Macroprudential policy and the revolving door of risk: lessons from leveraged lending guidance
We investigate the U.S. experience with macroprudential policies by studying the interagency guidance on leveraged lending. We find that the guidance primarily impacted large, closely supervised banks, but only after supervisors issued important clarifications. It also triggered a migration of leveraged lending to nonbanks. While we do not find that nonbanks had more lax lending policies than banks, we unveil important evidence that nonbanks increased bank borrowing following the issuance of guidance, possibly to finance their growing leveraged lending. The guidance was effective at reducing banks’ leveraged lending activity, but it is less clear whether it accomplished its broader goal of reducing the risk that these loans pose for the stability of the financial system. Our findings highlight the importance of supervisory monitoring for macroprudential policy goals, and the challenge that the revolving door of risk poses to the effectiveness of macroprudential regulations.
Cite this item
Sooji Kim & Matthew Plosser & Joao A. C. Santos, Macroprudential policy and the revolving door of risk: lessons from leveraged lending guidance, Federal Reserve Bank of New York, Staff Reports 815, 01 May 2017.
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
Keywords: macroprudential regulation; leveraged loans; banks; enforcement; supervision; shadow banking
This item with handle RePEc:fip:fednsr:815
is also listed on EconPapers
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