Copyright Page
© 2022 International Monetary Fund
WP/22/141
IMF Working Paper
Institute for Capacity Development
Macroprudential Regulation and Sector-Specific Default Risk
Prepared by Mohamed Belkhir, Sami Ben Naceur, Bertrand Candelon, Jean-Charles Wijnandts*
Authorized for distribution by Selim AN Elakdag
July 2022
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.
ABSTRACT: This paper studies the transmission of macroprudential policies across both financial and non financial sectors of the economy. It first documents that tighter macroprudential regulations implemented in Europe over the period 2008–2017 lowered default risk not only in the financial, but also in non-financial sectors. Second, the paper analyzes the impact of two reforms in the macroprudential framework. Higher capital requirements improve the long-run resilience of the financial sector but at the cost of raising long-term default risk in non-financial sectors. Strengthening the resolution framework for failing banks has beneficial long-run effects on the default risks of the financial and non-financial sectors. Our results concur with the literature documenting how banks adjust their balance sheet com position and credit supply in reaction to changes in their regulatory environment.
| JEL Classification Numbers: | C33, G01, G28 |
| Keywords: | Macroprudential regulation; Default risk; Capital requirements; Bankbail-in |
| Author’s E-Mail Address: | MBelkhir@imf.org (Mohamed Belkhir), sbennaceur@imf.org(Sami Ben Naceur), candelonb@gmail.com (Bertrand Candelon), jeancwij@gmail.com (Jean-Charles Wjnandts) |
| JEL Classification Numbers: | C33, G01, G28 |
| Keywords: | Macroprudential regulation; Default risk; Capital requirements; Bankbail-in |
| Author’s E-Mail Address: | MBelkhir@imf.org (Mohamed Belkhir), sbennaceur@imf.org(Sami Ben Naceur), candelonb@gmail.com (Bertrand Candelon), jeancwij@gmail.com (Jean-Charles Wjnandts) |
Title Page
WORKING PAPERS
Macroprudential Regulation and Sector-Specific Default Risk
Prepared by Mohamed Belkhir, Sami Ben Naceur, Bertrand Candelon, Jean-Charles Wijnandts
Contents
1. Introduction
2. Data
2.1. Sector-specific probabilities of default
2.2. The Macroprudential Policies Evaluation Database
3. Macroprudential regulation and default risk in a dynamic panel setting
3.1. Model specification and relevant predictors of corporate defaults
3.2. Empirical results
4. Panel event-study on the transmission of macroprudential policy reforms
4.1. The methodology
4.2. Impact of higher capital requirements in the banking system
4.3. Impact of a strengthening in the resolution framework for failing banks
5. Conclusion
Annex I. Additional results for the main analysis
References
FIGURES
FIGURE 1: IMPACT OF THE INTRODUCTION OF CRR
FIGURE 2: IMPACT OF THE INTRODUCTION OF BRRD
FIGURE 3: IMPACT OF THE INTRODUCTION OF CRR/CRD IV (EA COUNTRIES)
FIGURE 4: IMPACT OF THE INTRODUCTION OF BRRD (EA COUNTRIES)
FIGURE 5: IMPACT OF THE INTRODUCTION OF CRR/CRD IV (NON-EA COUNTRIES)
FIGURE 6: IMPACT OF THE INTRODUCTION OF BRRD (NON-EA COUNTRIES)
TABLES
TABLE 1: DESCRIPTIVE STATISTICS FOR THE SECTOR-SPECIFIC MEDIAN PROBABILITIES OF DEFAULT
TABLE 2: D ESCRIPTIVE STATISTICS FOR EXPLANATORY VARIABLES
TABLE 3: MACROPRUDENTIAL POLICIES AND SECTOR-SPECIFIC MEDIAN DEFAULT RISK
The authors thank the Credit Research Initiative (CRI) of the Asian Institute of Digital Finance at the National University of Singapore for the authorization of using their database and in particular, Duan Jin-Chuan, Zhang Jiayu and Thibaud Jack Limandat. We are also grateful for excellent comments Nina Biljanovska, Romain Bouis and Selim Elekdag. We thank the participants at McGill University and at Université Catholique de Louvain for their questions and comments. Jean-Charles Wijnandts gratefully acknowledges research support from the Belgian Fonds National de la Recherche Scientifique (F.R.S. – FNRS) under the ASP grant (grant code: FC 7207). Bertrand Candelon has conducted this research under the research program "Financial and Extra-Financial Risks Modeling" under the aegis of the Europlace Institute of Finance, Insti7. The usual disclaimers apply: The views expressed here are those of the authors, and the paper does not represent the views of the IMF, its Executive Board or its management. This paper should not be reported as representing the views of the Bank of England or members of the Monetary Policy Committee, Financial Policy Committee or Prudential Regulation Committee.