The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies

Abstract

Have bank regulatory policies and unconventional monetary policies -and any possible interactions -been a factor behind the recent 'deglobalisation' in cross-border bank lending? To test this hypothesis, we use bank-level data from the United Kingdom -a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the United Kingdom's Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on external lending. Quantitative easing may also have had an amplification effect, but these estimates are usually insignificant and smaller in magnitude. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the contraction globally. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending.

The Global Banking Network in the Aftermath of the Crisis: Is There Evidence of De-globalization?

“…This persistent aggregate decline in cross-border banking claims has been considered evidence of financial deglobalization (e.g. ; Lund et al 2013;Forbes 2014;Mallaby 2016;and Forbes, Reinhardt, and Wieladek 2017). In this paper, we consider the validity of the financial de-globalization argument by studying the evolution of the global banking network before, during and after the crisis, with a particular focus on the aftermath of the crisis.…”

Restrictive policy impacts in emerging economies

“…The other countries will be affected after the migration of capital flows to their frontiers. Little empirical evidence exists on this spillover effect (Forbes et al, 2017;Lambert et al, 2011;Zehri, 2020). We were among the first to demonstrate empirically these policy changes towards capital controls as a reaction to the early policy of another country which has already applied similar controls.…”

Transmission of the Global Bank Liquidity Shock: Evidence from the US Foreign Bank Loans to Southeast Asian Economies

“…Beginning in the 1990s, which came to be known as the monetary period of globalization, banks from rich nations began investing in developing market economies (Choi & Furceri, 2019;Schmidt et al, 2018). International financial institutions from industrialized nations lend to cross-border economies for various reasons (Albrizio et al, 2020;Forbes et al, 2017;Gurara et al, 2020;Van Nguyen et al, 2022;Xu & La, 2017). One of the reasons is that rich countries have increased competition and lending to emerging economies.…”

“…According to the bank lending flow factors, Forbes et al (2017), Shareef and Prabheesh (2020), and Takáts and Temesvary (2020) noted that The loan supply was impacted by market turmoil. However, a slowdown in the business cycle in one's own country had less precise results.…”

“…Using banks' balance sheets as a basis, banks have three different responses when foreign obligations suddenly increase (Forbes et al, 2017;Ginting & Widyawati, 2022;Morais et al, 2019). The bank will first add to its domestic obligations.…”