We analyze the effects of macroprudential policies on local bank credit cycles and their interactions with international financial conditions. To this end, we exploit the comprehensive credit register containing all bank loans to individuals in Romania, a small open economy subject to external shocks.Our sample period from 2004 until 2012 covers a full boom-bust credit cycle during which a wide range of macroprudential measures were deployed. Our results show that tighter macroprudential conditions are associated with a significant decline in household credit, with substantially stronger effects for FX loans than for local currency loans. The effects on FX loans are higher for: (i) ex-ante riskier borrowers proxied by higher debt-service-to-income ratios and (ii) banks with greater reliance on foreign funding. Furthermore, tighter macroprudential policy has stronger dampening effects on FX lending when global risk appetite is high and foreign monetary policy is expansionary. Quantitative effects are in general larger for borrower rather than lender macroprudential policies. Overall, the results suggest that macroprudential policies are effective in mitigating bank risk-taking in household lending over the local bank credit and global financial cycles and have important implications for theory and policy. . We are grateful for useful comments and suggestions from

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The paper analyzes structural differences in banks' ability and willingness to supply liquidity in the interbank market given the existing prudential regulation using a partial equilibrium model. The results show differences in the Liquidity Coverage Ratio (LCR) effectiveness for two types of banks' business models. First, for the more traditional one (with structural liquidity surplus), the LCR measure enables banks to lend more in the interbank market (by letting them subtract possible cash inflows from the expected outflows under a liquidity stress scenario) but at the cost of allowing them to maintain lower default limits (thresholds on the maximum liquidity shock the banks can withstand without entering default). Second, banks with structural liquidity deficits that need other funding sources than retail deposits, like subsidiaries that receive finance from their parent banks, face tighter requirements on high-quality liquid assets, keep higher default limits and lend less in the interbank market. For this business model, often seen in emerging markets, including Romania, the LCR measure fosters banks' resilience to liquidity shocks. However, this LCR functionality might encourage them to overlook contagion risk from their parent and parent banks' economies, especially under favorable financial conditions. Prudential authorities should complement the LCR measure with other instruments (like liquidity stress test) that better assess banks' liquidity risk due to maturity mismatch. Banks' liquidity risk management can partially mitigate the differences in LCR effectiveness through precautionary holdings of additional liquidity buffers. Banks with higher risk aversion prefer maintaining a higher no-penalty limit (the maximum liquidity shock the bank can accommodate without a penalty fee) and an increased default threshold and are less willing to lend in the interbank market.