Disclaimer: The scientific works in this project should not be reported as representing the views of the European Commission or the European Research Council. The views expressed are those of the authors and do not necessarily reflect those of the EC or the ERC.
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Book and Book Chapter
Freixas, X., Laeven, L., Peydró, J.-L. (2015). Systemic Risk, Crises, and Macroprudential Regulation. Cambridge (MA): MIT Press. DOI
Abstract: The recent financial crisis has shattered all standard approaches to banking regulation. Regulators now recognize that banking regulation cannot be simply based on individual financial institutions’ risks. Instead, systemic risk and macroprudential regulation have come to the forefront of the new regulatory paradigm. Yet our knowledge of these two core aspects of regulation is still limited and fragmented. This book offers a framework for understanding the reasons for the regulatory shift from a microprudential to a macroprudential approach to financial regulation. It defines systemic risk and macroprudential policy, cutting through the generalized confusion as to their meaning; contrasts macroprudential to microprudential approaches; discusses the interaction of macroprudential policy with macroeconomic policy (monetary policy in particular); and describes macroprudential tools and experiences with macroprudential regulation around the world. The book also considers the remaining challenges for establishing effective macroprudential policy and broader issues in regulatory reform. These include the optimal size and structure of the financial system, the multiplicity of regulatory bodies in the United States, the supervision of cross-border financial institutions, and the need for international cooperation on macroprudential policies.
Citations in: BIS Papers Macroprudential policy frameworks, implementation and relationships with other policies, vol. 94 (2017) · Austrian Central Bank Monetary Policy & the Economy issue Q2 (2018) · ifo Institut DICE Report vol. 15(1), 2017 · VoxEU 2019 / 2019 and 2016 · IMF Regional Economic Outlook: Domestic Revenue Mobilization and Private Investment (2018) · OECD Open and Orderly Capital Movements. Interventions from the 2016 OECD High-Level Seminar.
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Peydró, J.-L., Polo, A., Sette, E. (2018). Securities Trading and Lending in Banks in Mayer C., Micossi S., Onado M., Pagano M. and Polo, A. (eds.). Finance and Investment: The European Case. Oxford: Oxford University Press. DOI PDF (UPF e-repository)
Chapter abstract: Since the beginning of the financial crisis, academics and regulators on both sides of the Atlantic have started to debate the implications of securities trading by banks. New regulation limits security trading, fearing that this could crowd out lending to the real economy or could facilitate risk-shifting by financial institutions. On the other hand, banks may use security trading for hedging purposes or, particularly during a crisis, to access public liquidity. Only very recently have researchers begun to have access to micro data at the security level on banks’ trading activities, and they are starting to bring robust evidence on these issues. This chapter reviews the potential costs and benefits of combining traditional intermediation activity with security trading and discusses the recent empirical evidence.
Bubeck, J., Maddaloni, A. & Peydró, J.-L. (2020). Negative monetary policy rates and systemic banks' risk-taking: Evidence from the Euro Area securities register. Journal of Money, Credit and Banking 52(S1): 197-231. Special Issue on the 50th year anniversary of the JMCB. DOI (open access).
Abstract: We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans.
Media: Speech by Isabel Schnabel, Member of the Executive Board of the ECB (2020) · Expansión (2020) · ECB Economic Bulletin no. 3 (2020) · cited in VoxEU posts 2020 and 2019 · Featured in a Medium.com post The Unbearable Lightness of Low Rates (2020) and in MacroHive's Top Picks (2020)
NEW! Doerr, S., Gissler, Peydró, J.-L. & Voth, H.-J. (2021). Financial crises and political radicalization: How failing banks paved Hitler’s path to power. Journal of Finance, accepted. PDF
Abstract: Do financial crises radicalize voters? We study Germany's 1931 banking crisis, collecting new data on bank branches and firm-bank connections. Exploiting cross-sectional variation in pre-crisis exposure to the bank at the center of the crisis, we show that Nazi votes surged in locations more affected by its failure. Radicalization in response to the shock was exacerbated in cities with a history of anti-Semitism. After the Nazis seized power, both pogroms and deportations were more frequent in places affected by the banking crisis. Our results suggest an important synergy between financial distress and cultural predispositions, with far-reaching consequences.
Media: The Guardian (2021) · The Economist (2021) · Le nouvel economiste (2021) · Central Banking (2021) · BIS Economics blog (2021) · LSE Business Review (2020) · QRIUS (2020) · Continental Telegraph (2019) · CaixaBank Research IM05 monthly report (2019) · Les Echos (2018)
NEW! Bottero, M., Minoiu, C., Peydró, J.-L., Polo, A., Presbitero, A.F. & Sette, E. (2021). Expansionary yet different: Credit supply and real effects of negative interest rate policy. Journal of Financial Economics, forthcoming. DOI. PDF (working paper) PDF (postprint)
Abstract: We show that negative interest rate policy (NIRP) has expansionary effects on credit supply through a portfolio rebalancing channel. By shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero-lower-bound and has effects similar to QE. For identification, we exploit ECB’s NIRP and the Italian credit register and, for external validity, European and U.S. datasets. NIRP affects more banks with higher ex-ante liquid assets, including net interbank positions. More exposed banks reduce liquid assets, expand credit supply, especially to financially-constrained firms, and cut loan rates, inducing firms to increase investment and the wage bill.
Summary: CEPR VOXeu post (November 2021)
Media: CentralBanking.com (2020) · Keynote speeches by Philip R. Lane (ECB Executive Board) Berlin and New York (2020) & Helsinki and London (2019) · ECB Economic Bulletin no. 3 (2020) · IMF Global Financial Stability Report: Markets in the Time of COVID-19 (2020) · IMF World Economic Outlook report (2020) · Danmarks Nationalbank, Analysis: Positive pass-through from negative rates no. 5 (2020) · CEPR book The Bank Business Model in the Post-Covid-19 World (2020) · VoxEU posts August and April 2020 and 2019 · Speech by Boštjan Vasle Governor of the Bank of Slovenia (2019)Expansionary yet different: Credit supply and real effects of negative interest rate policy
Peydró, J.-L., Polo, A. & Sette, E. (2020). Monetary policy at work: Security and credit application registers evidence. Journal of Financial Economics, 140(3): 789-814. DOI. PDF (working paper). PDF (postprint)
Abstract: Monetary policy transmission may be impaired if banks rebalance their portfolios toward securities. We identify the bank lending and risk-taking channels of monetary policy by exploiting – Italy’s unique – credit and security registers. In crisis times, with higher central bank liquidity, less capitalized banks react by increasing securities over credit supply, inducing worse firm-level real effects. However, they buy securities with lower yields and haircuts. Unlike in crisis times, in precrisis times, securities do not crowd out credit supply. The substitution from lending to securities in crisis times helps less capitalized banks to repair their balance sheets and restart credit supply with a one-year lag.
Monetary policy at work: Security and credit application registers evidence
Abbassi, P., Bräuning, F., Fecht, F. & Peydró, J.-L. (2020). Cross-border interbank liquidity, crises, and monetary policy. Review of Financial Studies, accepted. PDF (working paper)
Previously circulated as 'International financial integration, crises and monetary policy: Evidence from the Euro Area interbank crises'
Abstract: We analyze how the Lehman and sovereign crises affect cross-border interbank liquidity, exploiting euro-area proprietary interbank data, crisis and monetary shocks, and loan terms to the same borrower during the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of cross-border liquidity, with stronger volume than pricing effects. On the extensive margin, results suggest that the cross-border credit crunch is independent of borrower quality, while—on the intensive margin—riskier borrower banks suffer more. Moreover, the cross-border liquidity crunch is substantially stronger for term loans, and weaker for foreign lender banks that have a subsidiary in the same country than the borrower. Finally, nonstandard monetary policy improves interbank liquidity, but without fostering strong re-integration of cross-border interbank markets.
Irani, R., Iyer, R., Meisenzahl, R. & Peydró, J.-L. (2021). The rise of shadow banking: Evidence from capital regulation. Review of Financial Studies 34(5): 2181-2235. Editor's choice. DOIAbstract: We investigate the connections between bank capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit a supervisory credit register of syndicated loans, loan-time fixed effects, and shocks to capital requirements arising from surprise features of the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention, particularly among loans with higher capital requirements and at times when capital is scarce, and nonbanks step in. This reallocation is associated with important adverse effects during the 2008 crisis: loans funded by nonbanks with fragile liabilities are less likely to be rolled over and experience greater price volatility.
Media: Wall Street Journal (2020) · European Systemic Risk Board's Advisory Scientific Committee report no. 10 on The global dimensions of macroprudential policy (2020) · CEPR book The Bank Business Model in the Post-Covid-19 World (2020) · Bank Policy Institute's Banking Perspectives (2019) · Nada es Gratis (2020) · VoxEU mentions 2019 & 2018
Akin, O., Marín. J.-M. & Peydró, J.-L. (2020). Anticipating the financial crisis: Evidence from insider trading in banks. Economic Policy 35(102): 213-267. Editor's choice. DOI. PDF (UPF e-repository)
Abstract: Banking crises are recurrent phenomena, often induced by excessive bank risk-taking, which may be due to behavioural reasons (over-optimistic banks neglecting risks) and to conflicts of interest between bank shareholders/managers and debtholders/taxpayers (banks exploiting moral hazard). We test whether US banks’ stock returns in the 2007-08 financial crisis are associated with bank insiders’ sales of their own bank’s shares in the period prior to 2006Q2 (the peak and reversal in real estate prices). We find that top-five executives’ sales of shares predict bank performance during the crisis. Interestingly, effects are insignificant for the sales of independent directors and other officers. Moreover, the top-five executives’ impact is stronger for banks with higher exposure to the real estate bubble, where a one standard deviation increase of insider sales is associated with a 13.33 percentage point drop in stock returns during the crisis period. Finally, even though bankers in riskier banks sold more shares (furthering their own interests), they did not change their bank’s policies, e.g. by reducing bank-level exposure to real estate. The informational content of bank insider trading before the crisis suggests that insiders knew that their banks were taking excessive risks, which has important implications for theory, public policy, and the understanding of crises, as well as a supervisory tool for early warning signals.
Jiménez, G., Mian, A., Peydró, J.-L. & Saurina, J. (2020). The real effects of the bank lending channel. Journal of Monetary Economics, 115: 162-179. DOI
Previously circulated as ‘Local versus aggregate lending channels: The effects of securitization on corporate credit supply in Spain’Abstract: This paper studies credit booms exploiting the Spanish matched credit register over 2001-2009. We extend Khwaja and Mian's (2008) loan-level estimator by incorporating firm-level general equilibrium adjustments. Higher ex-ante bank real-estate exposure increases credit supply to non-real-estate firms, but effects are neutralized by firm-level adjustments for firms with existing banking relationships. However, higher bank real-estate exposure increases risk-taking, by relaxing standards of existing borrowers (cheaper, longer-term and less collateralized credit), and by expanding credit on the extensive margin to first-time borrowers that default substantially more. Results suggest that the mechanism at work is greater liquidity via securitization of real-estate assets.
Media: VoxEU mentions 2018 and 2018 · Federal Reserve Bank of Richmond Economic Quarterly 101(4) (2015) · IMF Global Financial Stability Report: Transition Challenges to Stability (2013) · Speech by J.M. González Páramo, Executive Board Member of the ECB (2011)
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The real effects of the bank lending channel
Akin, O., Coleman, N.S., Fons-Rosen, C. & Peydró, J.-L. (2021). Political connections and informed trading: Evidence from TARP. Financial Management 50(3), 619–644 DOI
Voted number 1 article in the Fall 2021 issue of Financial Management.
Abstract: We study insider trading behavior surrounding the largest bank bailout in history: Troubled Asset Relief Program (TARP). In politically connected banks, insider buying during the pre-TARP period is associated with increases in abnormal returns around bank-specific TARP announcement; for unconnected banks, trading and returns are uncorrelated. Results hold across insiders within the same bank and are stronger for finance-related government connections. Through a Freedom of Information Act request, we obtained the previously undisclosed TARP funds requested; the ratio of received to requested funds correlates both with abnormal returns and insider buying behavior in connected banks.
- Summaries: Imperial College BS IB Knowledge newsletter (2021) · Vox column (2020) · Barcelona GSE: Focus (2017) · Nada es gratis (2016)
Listen to C. Fons-Rosen presenting at the Financial Management Association Annual Meeting (Top Papers in Financial Management Session) held in October 2021. Link: https://youtu.be/tikCcZduxnI (duration: 13 minutes)
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Political Connections: Evidence from Insider Trading Around TARP
Morais, B., Peydró, J.-L., Roldán-Peña, J. & Ruiz Ortega, C. (2019). The international bank lending channel of monetary policy rates and quantitative easing: Credit supply, reach-for-yield, and real effects. Journal of Finance, 74(1), 55–90. DOI. PDF (UPF e-repository)
Abstract: We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firm‐level real effects. Results support an international risk‐taking channel and spillovers of core countries’ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity risk‐taking by foreign banks) and in the tightening part (with negative local firm‐level real effects).
- Summaries: All about finance (World Bank) · World Economic Forum (blog) (2015)
- Media: Cited in VoxEU in 2020, 2018 and 2017 · World Bank, Global financial development report 2017-2018: Bankers without Borders · Brookings blog (2015) · Fed Board's IFDP Notes (2016)
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The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects
Abuka, C., Alinda R.K., Minoiou, C., Peydró J.L. and Presbitero, A. (2019). Monetary policy and bank lending in developing countries: Loan applications, rates, and real effects. Journal of Development Economics, 139, 185–202. DOI
Abstract: Recent studies of monetary policy in developing countries document a weak bank lending channel based on aggregate data. In this paper, we bring new evidence using Uganda's supervisory credit register, with microdata on loan applications, volumes and rates, coupled with unanticipated variation in monetary policy. We show that a monetary contraction reduces bank credit supply—increasing loan application rejections and tightening loan volume and rates—especially for banks with more leverage and sovereign debt exposure. There are associated spillovers on inflation and economic activity—including construction permits and trade—and even social unrest.
- Summary: VoxEU (2017)
- Media: World Bank, Global Economic Prospects flagship report: Slow Growth, Policy Challenges (2020) · The Economist (2019) · World Bank study on inflation in emerging and developing economies (ch. 6, 2019)
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Monetary policy and bank lending in developing countries: Loan applications, rates, and real effects
Altavilla, C., Boucinha, M. & Peydró J.-L. (2018). Monetary policy and bank profitability in a low interest rate environment. Economic Policy, 33(96), 531–86. DOI. PDF (UPF e-repository)
Within the Highly Cited Articles in Economic Policy
Abstract: We analyse the impact of standard and non-standard monetary policy on bank profitability. We use both proprietary and commercial data on individual euro area bank balance-sheets and market prices. Our results show that a monetary policy easing – a decrease in short-term interest rates and/or a flattening of the yield curve – is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions. Accommodative monetary conditions asymmetrically affect the main components of bank profitability, with a positive impact on loan loss provisions and non-interest income offsetting the negative one on net interest income. A protracted period of low monetary rates has a negative effect on profits that, however, only materializes after a long time period and is counterbalanced by improved macroeconomic conditions. Monetary policy easing surprises during the low interest rate period improve bank stock prices and CDS.
Regular publications and media: Barcelona GSE Focus (2020) · CaixaBank Research IM02 monthly report (2019) · Fed Board's FEDS Notes (April & Nov. (2019) · Bank of Finland Bulletin no. 4 (2019) · VoxEU posts 2020 · 2019 and 2019 · Central Bank of Ireland Financial Stability Notes no. 10 (2018) · Brookings blog (2017) · Handelsblatt (2017)
Reports, studies et al.: Fundación ICO The Euro in 2020. A Yearbook on the European Monetary Union (2020) · CEPR book The Bank Business Model in the Post-Covid-19 World (2020) · IMF Global Financial Stability Report: Markets in the Time of COVID-19 (2020): Annex 4.1 Technical note · European Parliament Think Tank in-depth analysis reports The main factors for the subdued profitability of significant banks in the banking union · The next SSM term: Supervisory challenges ahead (2019) · Negative interest rates and the signalling channel (2018) · How should the ECB ‘normalise’ its monetary policy? (2017) · Smets et al Bank of Chile Central banking, analysis, and economic policies book series 26 (2019) · European Commission, Joint Research Centre (JRC) technical report: What drives bank coverage ratios: Evidence from the Euro Area (2019) · 22nd Geneva Report on the World Economy (2019) · BIS Committee on the Global Financial System (CGFS) report no. 63, Unconventional monetary policy tools: A cross-country analysis (2019) · BBVA’s Banking Outlook report (2019) · OECD Economic Surveys: Euro Area (2018)
Speeches, conference remarks, opening addresses etc: Isabel Schnabel, Member of the Executive Board of the ECB (2020) · Philip R. Lane, Member of the Executive Board of the ECB (2020) · Luis de Guindos, Vice-President of the ECB (2019) · C. Evans, President and Chief Executive Officer of the Federal Reserve Bank of Chicago (2018) · Mario Draghi, President of the ECB, 1 and 2 (2017) · F. Villeroy de Galhau, Governor of the Bank of France (2020 and 2017)
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Jiménez, G., Ongena, S., Peydró, J.-L. & Saurina, J. (2017). Macroprudential policy, countercyclical bank capital buffers and credit supply: Evidence from the Spanish dynamic provisioning experiments. Journal of Political Economy, 125(6), 2126–77. DOI. PDF (UPF e-repository)
Abstract: To study the impact of macroprudential policy on credit supply cycles and real effects, we analyze dynamic provisioning. Introduced in Spain in 2000, revised four times, and tested in its countercyclicality during the crisis, it affected banks differentially. We find that dynamic provisioning smooths credit supply cycles and, in bad times, supports firm performance. A 1 percentage point increase in capital buffers extends credit to firms by 9 percentage points, increasing firm employment (6 percentage points) and survival (1 percentage point). Moreover, there are important compositional effects in credit supply related to risk and regulatory arbitrage by nonregulated and regulated but less affected banks.
Regular publications and media: El País, Agenda Pública (2020); Bloomsberg (2019); BBVA’s Banking Outlook report (2019); ECB Macroprudential Bulletin no. 8 (2019); VoxEU 2017 · VoxEU (2012); Bruges European Economic Policy Briefings no. 36 (2015); 'The Coordination of Micro and Macro-Prudential Supervision in Europe', P. Alessandri & F. Panetta, European Economy – Banks, Regulation, and the Real Sector, issue on Single Supervision and Cross-Border Banking, no. 3 (2015); 'The Bank Capital Controversy', J.C. Rochet, European Economy – Banks, Regulation, and the Real Sector, issue on Capital Requirements for Large Banks, no. 1 (2015); Banque de France, Financial Stability Review no. 18 (2014); ECB Financial Stability Review (May 2013); Sveriges Riksbank Economic Review no. 3 (2013); CEPR Policy Insight no. 58 (2011)
- Reports, studies et al.: IMF World Economic Outlook report (2020); Czech National Bank thematic article on financial stability 3/2020; CEPR-IESE report on financial regulation (2019); European Systemic Risk Board (ESRB) report Features of a macroprudential stance: initial considerations (2019) and report The cyclical behaviour of the ECL model in IFRS 9 (2019); World Bank report: A decade after the global recession (2019); European Commission, Joint Research Centre (JRC) technical report: What drives bank coverage ratios: Evidence from the Euro Area (2019); CEPR-IESE report on the future of banking (2019); World Bank study on emerging and developing economies (2019); Reserve Bank of New Zealand's Capital Review: response to submissions (2019); ESRB's Advisory Scientific Committee report no. 7 (2018); ESRB: A Review of Macroprudential Policy in the EU in 2017; BIS Papers Macroprudential policy frameworks, implementation and relationships with other policies, no. 94 (2017); ESRB report Financial stability implications of IFRS 9 (2017); Financial Stability Board's Framework for Post-Implementation Evaluation of Effects of the G20 Financial Regulatory Reforms. Technical Appendix (2017); European Banking Authority report SMEs and SME Supporting Factor (2016); European Commission, Evaluation of the financial sector assistance programme. Spain 2012-2014, report to the Council of the EU and the European Parliament (2016); Deutsche Bundesbank, The countercyclical capital buffer in Germany. Analytical framework for the assessment of an appropriate domestic buffer rate (2015); European Commission Staff working document, Evaluation of Regulation (EC) N° 1606/2002 of 19 July 2002 on the application of International Accounting Standards (2015); US Congress think tank report (2014); CEPR e-book Banking Union for Europe - Risks and Challenges (2012)
Speeches, conference remarks, opening addresses etc.: P. Hernández de Cos, Governor of the Bank of Spain (2019 and 2018); V. Constâncio, Vice-President of the ECB 1 and 2 (2015) (2013); Distinguished Vifredo Pareto Lecture by Jean Charles Rochet (2015): text and video (5:18); Janet Yellen, Federal Reserve Board's Vice Chair (2011)
- Presentation, Becker Friedman Institute (U. Chicago) 2014
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Macroprudential policy, countercyclical bank capital buffers, and credit supply: Evidence from the spanish dynamic provisioning experiments
Abstract: By providing liquidity to depositors and credit-line borrowers, banks can be exposed to double-runs on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs. In the cross-section, credit-line drawdowns are not larger for banks more exposed to the interbank market; however, they are larger when we condition on the same firms with multiple credit lines. We show that, ex-ante, more exposed banks actively manage their liquidity risk by granting fewer credit lines to firms that run more during crises.
Abbassi, P., Iyer, R., Peydró, J.-L. & Rodríguez-Tous, F. (2016). Securities trading by banks and credit supply: Micro-evidence from the crisis. Journal of Financial Economics, 121(3), 569–94. DOI. PDF (UPF e-repository)
Abstract: We analyze securities trading by banks during the crisis and the associated spillovers to the supply of credit. We use a proprietary data set that has the investments of banks at the security level for 2005–2012 in conjunction with the credit register from Germany. We find that—during the crisis—banks with higher trading expertise (trading banks) increase their investments in securities, especially in those that had a larger price drop, with the strongest impact in low-rated and long-term securities. Moreover, trading banks reduce their credit supply, and the credit crunch is binding at the firm level. All of the effects are more pronounced for trading banks with higher capital levels. Finally, banks use central bank liquidity and government subsidies like public recapitalization and implicit guarantees mainly to support trading of securities. Overall, our results suggest an externality arising from fire sales in securities markets on credit supply via the trading behavior of banks.
Media: Bank of England's policy blog Bank Underground (2017); Bundesbank Research Brief (2016); European Systemic Risk Board, joint ATC-ASC-FSC Task Force: Technical documentation section B. The impact of low interest rates and ongoing structural changes on the banking system: Assessment of vulnerabilities, systemic risks and implications for financial stability (2016); Wall Street Journal (2016); Deutsche Bundesbank Monthly Report vol 68, no. 6 (2016) and Annual Report 2015
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Securities trading by banks and credit supply: Micro-evidence from the crisis
Peydró, J.-L. (2016). Macroprudential policy and credit supply. Swiss Journal of Economics and Statistics, 152(4), 305–318. DOI
Based on the Keynote speech at the CEPR St-Gallen FGN conference on “Banks, Financial Markets and Economic Growth”.
Abstract: In this paper we analyze financial crises and the interactions of macroprudential policy and credit. Financial crises are recurrent systemic phenomena, often triggering deep and long-lasting recessions with large reductions in aggregate welfare, output and employment. Importantly for policy, systemic financial crises are typically not random events triggered by exogenous events, but they tend to occur after periods of rapid, strong credit growth. Moreover, a credit crunch tends to follow in a financial crisis with negative aggregate real effects. Macroprudential policy softens the credit supply cycles, with important positive effects on the aggregate real economy in crisis times.