Abstract
AbstractThis study aims to investigate the effectiveness of macroprudential policies in mitigating the systemic risk in Indonesia. The study uses quantitative descriptive analysis with the Vector Error Correction Model (VECM) and emphasizes on the impact of two macroprudential instruments applied in Indonesia; Macroprudential Liquidity Buffer (MLB) and Countercyclical Capital Buffer (CCyB) to credit growth for conventional and financing growth for Sharia bank. This study employes monthly data over the periods M12010-M102019 that obtained from Bank Indonesia’s (BI) website (www.bi.go.di) and the data published monthly by Financial Service Authority (OJK); Indonesia Bank Statistic and Sharia Bank Statistic.The result indicates that MLB has a positive impact on credit growth and negative effect financing for Sharia Bank. Otherwise, CCyB shows the opposite results, where it has a negative effect on credit growth, while in the Sharia bank, CCyB has a positive effect. Therefore, it is sufficient to conclude that MLB has a capability to curb the systemic risk for Sharia bank, whereas CCyB is effective for conventional bank.
Highlights
While CAR has a positive impact on financing growth
We can conclude that the implementation of the Macroprudential Liquidity Buffer (MLB) policy effectively mitigates the build-up of systemic risk only in Sharia bank. b
The Countercyclical Capital Buffer (CCyB) has a negative impact on credit growth, while for Sharia bank, CCyB has positive impact
Summary
Asia Financial Crises in 1998, where Indonesia, Thailand, and South Korea were the three most fragile countries. Global Financial Crises in 2008, occurring widely in property sector in USA. Indonesia has a more resilient performance amid the uncertainty of global economics at that time. The crises provide essential lessons for the government to concern about the prudent aspect of every taken policy. Hahm et al (2012) explained several lessons in financial crises. The risk build-up has significant impact on real economy, very high cost and price and output stability do not ensure financial security. In spite of the high cost needed, financial crises need long time recovery (Bank Indonesia 2016)
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