Cross-border Banking and the Circumvention of Macroprudential and Capital Control Measures

September 28, 2018

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Eugenio M Cerutti, and Haonan Zhou. Cross-border Banking and the Circumvention of Macroprudential and Capital Control Measures, (USA: International Monetary Fund, 2018) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We analyze the joint impact of macroprudential and capital control measures on cross-border banking flows, while controlling for multidimensional aspects in lender-and-borrower-relationships (e.g., distance, cultural proximity, microprudential regulations). We uncover interesting spillover effects from both types of measures when applied either by lender or borrowing countries, with many of them most likely associated with circumvention or arbitrage incentives. While lender countries’ macroprudential policies reduce direct cross-border banking outflows, they are associated with larger outflows through local affiliates. Direct cross-border inflows are higher in borrower countries with more usage of macroprudential policies, and are linked to circumvention motives. In the case of capital controls, most spillovers seem to be present through local affiliates. We do not find evidence to support the idea that additional capital inflow controls could interact with macro-prudential policies to mitigate cross-border spillovers.

Subject: Balance of payments, Bank credit, Banking, Capital controls, Cross-border banking, Financial sector policy and analysis, Financial services, Macroprudential policy, Macroprudential policy instruments, Money

Keywords: Affiliate lending, Bank credit, Banking flow, Borrower country, Borrowers' MPM, Capital Controls, Cross-border banking, Cross-Border Banking Flows, Global, Inflow restriction, Lender-borrower level, Macroprudential Policies, Macroprudential policy, Macroprudential policy instruments, MPM spillover, MPM usage, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/217
Stock No:

WPIEA2018217
ISBN:

9781484378328
ISSN:

1018-5941

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