Macroprudential Policies and the Growth of Bank Credit

Abstract:

New bank regulations include macroprudential policies to control bank loan growth. Justified by theory, it is unclear whether these policies will work in practice. We estimate the relationship between macroprudential capital and liquidity controls, supervisory intensity, and loan growth using U.S. bank data while controlling for loan demand and other factors that affect loan growth. We find bank funding costs and supervisory monitoring intensity to be the most important determinants of loan growth followed by loan portfolio performance and bank profitability. Bank capital and liquidity ratios have limited impacts, suggesting that macroprudential regulations are unlikely to be effective.

Macroprudential policies and the growth of bank credit by American Enterprise Institute