Abstract
Research background:Although macroprudential instruments increase financial stability, it is necessary to test how they affect the overall economic recovery after a global financial crisis. In the post-crisis period, the real sector needed a strong injection of capital in order to be able to start recovery and to encourage economic growth. At the same time, most of the countries introduced strict regulatory measures that strengthen bank capital and the liquidity base. From the standpoint of the financial sector stability, these measures contributed to the overall financial stability, but at the same time, these measures hold up the bank credit activity.Purpose of the article:This paper analyses the impact of macroprudential instruments on the bank credit activity toward the non-financial sector. The analysis is made by using the Granger Causality Test and the ARLDS Bounds Test.Methods:The research was conducted for the period of 2000 – 2019, based on the data of the Croatian National Bank and the Croatian Bureau of Statistics using logarithmic quarterly data. The analysis is made by using the Granger Causality Test and the ARLDS Bounds Test.Findings & Value added:The results confirm the thesis that additional macroprudential measures decrease the bank credit activity toward the real sector, which slows down the real sector recovery and extends the downturn in the business cycle. On the other hand, the macroprudential measures increase the financial stability of the whole economy, which is positive for future investments and recovery of the real sector.
Highlights
As the response to the overall financial crisis that started in 2008, every country has started to strengthen its framework in order to build stronger financial system
From the standpoint of the financial sector stability, these measures contributed to the overall financial stability, but at the same time, these measures hold up the bank credit activity
Findings & Value added: The results confirm the thesis that additional macroprudential measures decrease the bank credit activity toward the real sector, which slows down the real sector recovery and extends the downturn in the business cycle
Summary
As the response to the overall financial crisis that started in 2008, every country has started to strengthen its framework in order to build stronger financial system. Macro prudential policy places focus on capital controls which brings more regulations in supervision of the financial sector. The most popular macroprudential tool is countercyclical capital buffer, which is designed to protect banks from procyclical behaviour during the boom in financial cycle and building-up systemic vulnerabilities [4]. The analysis of macro prudential regulation in the European Union from 1995 until 2014 suggest that a share of instruments available in the present macro prudential toolbox, such as capital buffers, regulatory lending standards or liquidity caps, may have had an impact on credit to nonfinancial private sector in the EU. We test the impact of macroprudential instruments (countercyclical capital buffer, reserve requirement and minimum required foreign currency claims) on bank credit activity toward the non-financial sector. Macroprudential measures increase the financial stability of the whole economy, which is positive for future investments and recovery of real sector
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