Changes in Prudential Policy Instruments - A New Cross-Country Database

By Eugenio Cerutti, Ricardo Correa, Elisabetta Fiorentino, Esther Segalla. Social Science Research Network, 2016

248 citations recorded by the source corpus.

This paper documents the features of a new database that focuses on changes in the intensity in the usage of several widely used prudential tools, taking into account both macro-prudential and microprudential objectives. The database coverage is broad, spanning 64 countries, and with quarterly data for the period 2000Q1 through 2014Q4. The five types of prudential instruments in the database are: capital buffers, interbank exposure limits, concentration limits, loan to value (LTV) ratio limits, and reserve requirements. A total of nine prudential tools are constructed since some useful further decompositions are presented, with capital buffers divided into four sub-indices: general capital requirements, real state credit specific capital buffers, consumer credit specific capital buffers, and other specific capital buffers; and with reserve requirements divided into two sub-indices: domestic currency capital requirements and foreign currency capital requirements. While general capital requirements have the most changes from the cross-country perspective, LTV ratio limits and reserve requirements have the largest number of tightening and loosening episodes. We also analyze the instruments’ usage in relation to the evolution of key variables such as credit, policy rates, and house prices, finding substantial differences in the patterns of loosening or tightening of instruments in relation to business and financial cycles.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/b71a090da49a1c32457cb6c722662b9749277620

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Citations in the corpus

Cross-Border Prudential Policy Spillovers: How Much? How Important? Evidence from the International Banking Research Network (2016, methodology): “Cerutti et al. (2017) use the 2013 GMPI IMF survey to create a database of macroprudential policy stances in 119 countries, and find that domestic credit growth in emerging markets is weaker when prudential policy stances are more restrictive.”
Necessity As the Mother of Invention: Monetary Policy after the Crisis (2017, methodology): “What are these “other” (than interest rates) macro-prudential instruments? Figure 4 shows the five instruments that were most actively used in 2013, according to the database of Cerutti et al. (2015).”
The shifting drivers of global liquidity (2020, unknown): “We specifically focus on the three prudential policy instruments that have been shown to have the largest impact on international bank lending: loan-to-value ratio caps, capital requirements and local currency reserve requirements (Cerutti et al., 2017; Avdjiev et al., 2017; and Buch and Goldberg, 2”
CENTRAL BANK POLICIES AND INCOME AND WEALTH INEQUALITY: A SURVEY (2019, unknown): “Frost and van Stralen (2017) use macroprudential instruments from the database of Cerutti et al. (2016) for 69 countries over the period 2000–2013 and analyze their relation with Gini coefﬁcients of market and net income inequality.”
Economic uncertainty and bank risk: Evidence from emerging economies (2020, methodology): “policies by Cerutti et al. (2017a) are based on five categories of instruments, such as capital buffers, interbank exposure limits, concentration limits, loan-to-value ratio limits and reserve”
Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies? (2019, background): “This often implies the need of a countercyclical (prudential) tool (Federico et al., 2014; Cordella et al., 2014; Cerutti et al., 2016).”