State ownership, macroprudential policies, and bank lending

Abstract

We examine whether state ownership affects the effectiveness of macroprudential policies in curbing bank credit growth. Using a panel data set of 386banks from 50 countries around the world over the period 2001–2013, we find that macroprudential policies limit credit growth; however, the coefficient of the interaction between state ownership and macroprudential indices is positive and statistically significant. This finding suggests that bank state ownership weakens the effectiveness of macroprudential policies in reducing credit growth. This result is robust to controls for bank- and country-level variables and endogeneity concerns. Nonetheless, we report that the type of macroprudential policies, the type of bank loans, and other country-level characteristics, such as the extent of political connections and corruption in bank lending, can influence the joint role of state ownership and macroprudential policies.