For many decades both UK and US politicians have encouraged homeownership supported by mortgage lending. Exuberant borrowing has fuelled housing booms and is central to many recent financial problems. As a consequence macroprudential policies have been developed to improve financial stability using a mixture of measures to deter excessive lending including loan-to-value and debt-to-income restrictions. This thesis considers macroprudential policymaking generally and, more specifically, this latter group of macroprudential measures. It concludes that it is unlikely that these measures can be used to any significant extent in western democracies. At its heart is their political legitimacy and the potential consequences for the institutions promulgating such policies since a major use of these limits would have a direct and very visible effect on home ownership aspirations. Further, the evidence indicates that these measures may well be ineffective. This thesis suggests that conduct of business regulatory policy and the use of mortgage affordability verification may be more effective. However, the successful employment these measures for macroprudential purposes may be hindered by the structure of UK financial services regulation. Moreover, there is a challenge in that historically, UK conduct of business regulation has often failed. Nevertheless, in the area of mortgage affordability, there may be opportunities to use innovative regulatory policies to reduce these risks going forward. Further, there may be lessons for the UK from the US's approach of using the concept of the "qualified mortgage" and, additionally, in considering the role of sound conduct of business policies such as those are used by the US Veterans Administration. Nevertheless, the failure to build sufficient homes over the last forty years is at the heart of UK financial instability. Macroprudential policy may have the unequal task of attempting to suppress house price booms. This raises political issues and highlights the constraints on macroprudential policy with limits on its ability to influence fiscal and socio-economic policy. This thesis seeks to influence the debate on what can be done to help to ensure financial stability.

La presente investigación tiene como objetivo examinar el efecto de la política macroprudencial en el riesgo de insolvencia de las entidades bancarias en el Perú. Las herramientas que se estudian son las provisiones dinámicas, los requerimientos de capital, los requerimientos de encaje en moneda nacional y en moneda extranjera. El periodo de estudio comprende desde el año 2011 hasta el 2019 y el análisis se realiza a través de un panel dinámico. Los resultados indican que la política macroprudencial ha sido efectiva para disminuir el riesgo de insolvencia de las entidades bancarias pero de manera parcial, ya que solo los requerimientos de capital y los requerimientos de encaje en moneda extranjera tienen significancia estadística. La no significancia de los requerimientos de encaje en moneda nacional se pueden deber a que estos se han mantenido en valores estables y que pueden ser efectivos para otros objetivos intermedios. Con respecto a las provisiones dinámicas, estas solo han estado activas durante un periodo corto de tiempo, lo cual se podría deber a que el criterio está asociado al ciclo económico y no al ciclo financiero. Asimismo, se encuentra que algunas características originan que los bancos se encuentren menos expuestos al riesgo de insolvencia, tales como el grado de capitalización, la estructura de financiamiento, el tamaño y su nivel de actividad. / The aim of this investigation is to examine the effect of macroprudential policy on the banks’ risk of insolvency in Peru. The tools included are dynamic provisions, capital requirements, and the requirements for assembling in national currency and foreign currency. The study period runs from 2011 to 2019 and the analysis is done through a dynamic panel. The results indicate that the macroprudential policy has been effective in reducing the risk of insolvency of banks, but only partially, because only capital requirements and the requirements on reserve for foreign currency have statistical significance. The non-significance of the reserve requirements in national currency may be due to the fact that they have been maintained at stable values and that they may be effective for other intermediate objectives. With regard to the dynamic provisions, they have only been active for a short period of time, which could be due to the fact that the criterion is associated with the economic cycle and not with the financial cycle. Likewise, it is found that some characteristics cause banks to be less exposed to insolvency risk, such as such as the degree of capitalization, the financing structure, the size and their level of activity. / Trabajo de investigación

I study optimal monetary and macroprudential policies in a New Keynesian DSGE framework with leverageconstrainedbanks. In particular, I assess the desirability of alternative operational policy rules when theeconomy is hit by mortgage default shocks and show that their implications for inflation dynamics and policytrade-offs depend on whether the shocks originate in the household sector or in the entrepreneurial sector ofthe economy. Moreover, I find that the strategy of ‘leaning against the wind’ (LAW) of credit growth deliverssystematically poorer stabilization outcomes than standard flexible inflation-targeting when there exists anon-trivial trade-off between stabilizing output and inflation, but outperforms conventional monetary policyfor shocks that generate a comovement between the two, irrespective of the real or financial nature of theshock.I show that optimal macroprudential regulation that is as concerned with output as monetary policy candrastically reduce, and in many cases completely eliminate, the incentive to lean against the wind. I arguethat this is due to the ability of full-fledged optimal macroprudential policy to break the favourable complementaritybetween stabilizing credit growth and stabilizing output growth which underlies the incentive tolean against the wind. Macroprudential policy proves a superior substitute to LAW because it can achieve thesame financial stability objectives without systematically imposing costs in terms of price stability.

The thesis focuses on the interaction between macroprudential and monetary policies in the presence of bank runs. In particular, it is examined whether the two policies should be conducted separately or jointly, and whether the occurence of a bank run affects the result. Furthermore, it is studied how a bank run impacts the efficiency of the two policies. \\ The baseline results suggest that cooperation between the two policies is less efficient than when they are determined separately. The reason might be a coordination issue that arises because the same objective is being assigned to both policies in the cooperative case. On the other hand, when facing a bank run the cooperative regime achieves a higher degree of financial stability by reducing the probability of a next run. This is caused by the fact that cooperating authorities choose more aggresive macroprudential policy when a bank run occurs. A bank run itself does not change the ranking of the two policy regimes. However, an occurence of a bank run induces higher efficiency of both policies, irrespective of the regime in place. In addition, the policies are more effective when they face financial shocks, as opposed to a productivity shock.

The banking sector plays a pivotal role in the economy in which it operates. It is therefore imperative to institute international regulatory bodies and regulations which will ensure the protection of all stakeholders in the sector. The adoption and implementation of the Basel Accords and their revised versions has been encouraged at The World Bank level, but the opinions and studies regarding the impact of the tightened regulations on the banking sector generated varied reactions. The objective of this research was to establish whether the increased capital requirements regulations, as guided by The Basel Accords, had negatively impacted the bank domestic lending of the countries which implemented the regulations by 2012. This quantitative research involved comparison of the domestic lending rates as a percentage of GDP of the countries which implemented Basel II for the years before, and after the implementation. The study has revealed that, despite the concerns that the increased capital requirements regulations would increase the lending costs, the implementation of these regulations did not negatively affect domestic lending from the banking sector. This research document concludes by recommending a few process guidelines which the global banking regulators might consider during the implementation of Basel III. / Dissertation (MBA)--University of Pretoria, 2013. / ccgibs2014 / Gordon Institute of Business Science (GIBS) / MBA / Unrestricted

La résilience apparente du secteur financier haïtien face à la crise financière de 2007-2008 soulève de nombreuses questions quant à son degré réel d’immunité face au risque systémique et aux raisons fondamentales qui auraient pu expliquer ce phénomène. Leur apporter des éclairages, notamment à partir d’études empiriques, peut aider à mieux cerner les enjeux et la formulation d’une politique macro-prudentielle pour Haïti. De fait, Haïti est un pays à faible revenu disposant d'un système financier formel restreint. De ce point de vue, son exposition aux aléas de l’environnement financier international peut paraître relativement faible. Toutefois, on se demande comment protéger l’industrie bancaire – et, incidemment l’économie haïtienne – d’un risque de nature systémique, compte tenu en particulier de l’ampleur des transferts de liquidité par la diaspora et ceux en nature. On peut donc y voir une source supplémentaire de vulnérabilité en cas de récession appelant un changement de priorité chez ces pays donateurs aux dépens de l’équilibre financier global de cette petite économie de la zone Caraïbe. Dans cette perspective, le présent travail de thèse vise d’abord à déterminer les principaux facteurs de la résilience des banques haïtiennes à la crise financière de 2007-2008. Les interdépendances entre les cycles financiers haïtien et ceux de ses voisins nord-américains sont ainsi étudiées. Pour apprécier la dimension systémique du risque que fait peser l’activité des banques, l’analyse porte aussi sur les liens entre cycle de crédit et cycle d’activité en Haïti. Ensuite, des estimations sont réalisées pour quantifier l’impact de la variabilité de la conjoncture sur les performances des banques. Les enseignements tirés de ces analyses alimentent la réflexion sur l’élaboration d’un dispositif de surveillance macro-prudentielle en Haïti. Les résultats obtenus attestent du lien étroit entre le cycle financier haïtien et ceux des membres de l’accord de libre échange nord-américain. Ceci représente une source de risques exogènes pour le système financier haïtien. De plus, l’analyse de l’impact de la variabilité de l’environnement macroéconomique sur les performances financières des banques commerciales haïtiennes supportent l’hypothèse de la fragilité du secteur bancaire. La diversité des expériences de politique macroprudentielle invite à recommander une voie médiane, entre séparation totale et fusion complète des pouvoirs monétaires et de surveillance de l’industrie bancaire, compatible avec les contraintes auxquelles Haïti est soumise. Finalement, l’implémentation d’une direction de macroprudence et une liste de plusieurs recommandations d’ordre macroprudentiel ont été proposées. Ces propositions visent à répondre aux problématiques qui semblent mettre en lumière les limites des instruments de la politique monétaire. / The apparent resilience of the financial sector in Haiti towards the financial crisis of 2007-2008 raises many questions about the actual degree of resistance to systemic risk and the fundamental reasons that could explain this phenomenon. Providing insights, especially from empirical studies can help better understand the issues and the need for a strong macro -prudential policy in Haiti. In fact, Haiti is a low-income country with a limited formal financial system. From this point of view, its exposure to the unpredictable international financial environment may seem relatively low. However, one wonders how to protect the banking industry - and incidentally the Haitian economy – from a systemic risk, especially given the magnitude of the transfers of food and money from the Diaspora. It can therefore be seen as an additional source of vulnerability to recession resulting to a change of emphasis in the donor countries at the expense of overall financial equilibrium of this small economy in the Caribbean. The purpose of this thesis is to first identify the key factors of the resilience of Haitian banks to the financial crisis of 2007-2008. It also covers the interdependencies between Haitian financial cycles and those of its North American neighbors. To assess the systemic dimension of risk posed by the activities of banks, the analysis also focuses on the relationship between the credit cycle and the business cycle in Haiti. Second, estimates are made to quantify the impact of change in economic environment on the performance of banks. The lessons learned from these analyses feed the thought on the development of an efficient setup for macro-prudential regulation in Haiti. The results demonstrate the close relationship between the Haitian financial cycle and those members of the Agreement North American Free Trade Agreement. This is an exogenous source of risk for the Haitian financial system. In addition, the analysis of the impact of a change in the macroeconomic environment on the financial performance of the Haitian commercial banks strengthens the hypothesis of the banking system’s fragile state. The diversity of macro-prudential policy experiments lead me to recommend a compromise between total separation and complete fusion of monetary authorities and monitoring of the banking industry, consistent with the constraints that Haiti is facing. Finally, the implementation of a macro-prudential department as well as a list of several macro-prudential recommendations has been suggested. These proposals aim to address the issues that highlight the limits of the effectiveness of the monetary policy instruments.

This dissertation consists of three essays on banking. The first two chapters analyze, theoretically and empirically, the relationship between bank capital and macroeconomic activity. The third chapter addresses a policy question about financial deepening in some emerging market economies. The first chapter develops a dynamic stochastic general equilibrium model to examine the impact of macroprudential regulation on the bank's financial decisions and the implications for the real sector. It explicitly incorporates costs and benefits of capital requirements. We model an occasionally binding capital constraint and approximate it using an asymmetric nonlinear penalty function. It is seen that higher capital requirements can dampen business cycle fluctuations and stronger regulation can induce banks to hold buffers and hence mitigate an economic downturn. We also see that higher capital requirements can enhance the welfare of the economy as a whole. Lastly, we find that switching to a counter-cyclical capital requirement regime can help moderate business cycle fluctuations and raise welfare. The second chapter empirically evaluates the impact of bank capital on lending patterns using an innovative instrumenting strategy. We construct an unbalanced quarterly panel of around nine thousand commercial banks over sixty quarters, from 1996 to 2010. Using different measures of capital, we find a moderate relationship between bank equity and lending. The relationship is also found to differ by size. The bigger banks have a greater responsiveness of lending to capital than smaller ones. The third chapter evaluates financial deepening in the West African Economic and Monetary Union (WAEMU) and compares their performance with other top performers in Africa. First, we use an unbalanced panel of 16 countries and 158 banks and document some key areas that need immediate policy attention. Next, we use the financial possibility frontier methodology to benchmark the performance of some important economies in our sample, with respect to each other and their estimated potential. We find that the WAEMU countries perform poorly compared to the control group and their own estimated potential. We make policy recommendations to solve this problem and increase financial depth.

The 2008 global financial crisis was a rude awakening for financial regulators. In its wake, a novel approach called macroprudential policy became an important pillar of financial regulation. But in the years after the crisis, the stringency of macroprudential policy outputs vary across countries, across specific financial sectors, and across time, a worrying reality given that uneven regulation across borders and sectors was one of the exacerbating factors of the 2008 crisis. What explains this cross-country, cross-sectoral and cross-temporal variations in macroprudential policy? This dissertation argues that when the political salience of financial regulation is high, politicians are more likely to intervene in regulatory affairs to impose their policy preferences. But in times when salience is low, it is the policy orientation of the regulators – the “tamers of finance” – that primarily shape the stringency of macroprudential policy. In institutional settings with multiple financial regulators who hold conflicting policy orientations, this bureaucratic tension is likely to increase policy stringency. This theoretical framework is tested through an in-depth comparative historical analysis of the banking and asset management sectors in the United States and Japan. In the US banking sector, regulators to impose highly stringent macroprudential policies in the aftermath of the 2008 crisis, but they began to loosen these policies at the margins from 2017. The US asset management sector, on the other hand, was characterized by policies of moderate stringency in the wake of the crisis, and again after 2014. In the Japanese banking case, the crucial financial crisis for determining macroprudential policy outcomes came not in 2008 but in the late 1990s, when the government was compelled to contain a banking crisis and implemented highly stringent policies. After 2008, therefore, Japanese regulators could afford to implement policies of only moderate stringency. Finally, the Japanese asset management sector remains untouched by macroprudential policy because both politicians and regulators gradually deregulated and liberalized to this sector, which historically struggled to grow, and have not felt the need to enact macroprudential policies. In all, this analysis broadly confirms the theoretical framework set forth in this dissertation. / Political Science

The first chapter analyzes the impact of macroprudential policies on bank systemic risk worldwide. Using data from 63 countries over 2001-2017, I find strong evidence that macroprudential policies are effective in reducing systemic risk at the country level. The effectiveness of macroprudential policies differs across countries in the sample. Macroprudential policies are more effective in reducing systemic risk in countries with more advanced economic development, with a higher degree of concentration in the banking sector, and with less stringent micro-prudential regulations. Bank-level evidence suggests that bank size matters. The impact of macroprudential policies on constraining bank systemic risk is more pronounced for large banks. Results are robust to the use of instrumental variables to address potential concerns, and to the inclusion of additional controls to account for the impact of alternate tools that might be used to foster financial stability. These results have policy implications for effective conduct of macroprudential policies. The second chapter examines the impact of macroprudential policies on private credit growth worldwide. Using data from 43 countries over 2001-2017, I confirm previous findings that borrower-targeted macroprudential policies (Loan-to-Value ratio and Debt-to-Income ratio) significantly reduce total private credit growth. Moreover, the impact of macroprudential policies on private credit differs across countries in the sample. Macroprudential policies negatively affect credit growth only in countries with less advanced economic development, with a lower degree of creditor protection, and without the existence of information sharing institutions. Results are robust to additional controls to account for the impact of alternate bank regulations and policies that might be used to constrain unsustainable credit growth. The third chapter examines the impact of loan loss provisions regulations on bank income smoothing. Using a sample of 2,380 banks from 107 countries over the period 1995-2016, I document evidence that stricter loan classification regulation reduces bank income smoothing through loan loss provisions, especially for big banks. However, I do not find such impact of loan provisioning regulation. I also find evidence that stricter loan classification regulation is effective at reducing bank income smoothing because it encourages banks to recognize loan loss in a more timely manner.

Legal aspects of macroprudential regulation in the EU Abstract Even though the term macroprudential regulation is regularly used in scientific literature, attempts to define this term are scarce. Clear delineation of macroprudential regulation enables the distinction of macroprudential tools from other policy tools, such as microprudential supervision tools or capital controls. Moreover, it allows the determination of essential macroprudential tools and their current application in light of the crisis related to the COVID-19 pandemic and the transition towards the CRR2/CRD5 framework. As part of the EU legal order, macroprudential regulation interacts with the principles of internal market functioning. As a matter of principle, macroprudential measures should not contradict rules governing the internal market, even though some tensions with the free movement of capital may emerge. Uncertainties about the judicial review of macroprudential regulation may also exist. Macroprudential measures should subject to a less rigorous judicial review inspired by CJEU monetary policy case law. The rationale behind this lies in the highly complex economic decision-making process accompanying the adoption of macroprudential regulation. There is vast heterogeneity amongst EU member states concerning the application of...