The Bank-Lending Channel of Macroprudential Policy : Evidence from Cross-Border Bank Flows

We examine the impact of cross-border bank flows from source countries on the lending behavior of banks located in destination countries. Separately, we investigate how this effect changes due to macroprudential policy action taken in source countries. We find that all destination-country banks issue more loans to firms and households in response to a greater inflow of credit from abroad. We also find that among macroprudential policy instruments activated in source countries, only capital-based and international exposure tools affect the magnitude of the international credit channel. A tightening in these measures reduces the impact of cross-border flows on the credit supply of recipient banks, unveiling a negative spillover effect of foreign macroprudential policy. Decomposing cross-border inflows into bank and non-bank flows, effects are entirely transmitted by flows to the banking sector and are more pronounced for recipient banks with lower capitalization