CCyBs, MNCs, and cross-border leakage
In this paper, Björn Imbierowicz, Axel Loeffler, Steven Ongena, and Ursula Vogel investigate whether multinational corporations (MNC) subsidiaries exposed to a countercyclical capital buffer (CCyB) increase in their host country simply shift their borrowing through the parent company’s internal capital market, and if so, who ends up bearing the risk. The authors use German MNCs as a natural experiment. Germany never activated a CCyB during the 2013–2019 sample period, so all German parents are unaffected, but their foreign subsidiaries operating in countries that did raise the CCyB (e.g., Norway from 2015, Sweden from 2015Q3, etc.) face a genuine credit shock.
Imbierowicz et al. combine two Bundesbank proprietary databases: the MiMik credit register (quarterly loan-level data from all German bank and nonbank lenders) and MiDi (annual balance sheets of German firms’ foreign subsidiaries, including the split between external debt and internal parent-provided debt).
Findings
The results paint a complete, three-stage transmission chain:
- Stage 1: Bank credit to subsidiaries contracts. A 1pp CCyB increase reduces German bank lending to affected subsidiaries by 10.6%. Nonbank lending to subsidiaries is entirely unresponsive, consistent with nonbanks being outside the CCyB regulatory perimeter.
- Stage 2 : Parents substitute via internal debt, not equity. Parents respond by increasing internal debt flows to affected subsidiaries, equivalent to +2.3 pp of total liabilities per 1 pp CCyB increase (about one-third of the average internal debt level). Parent equity injections show no significant change. The substitution is complete: subsidiary total liabilities and probability of default remain statistically unchanged and hence the macroprudential shock is fully neutralized at the subsidiary level. Smaller subsidiaries receive disproportionately more parental support.
- Stage 3: Parents refinance by borrowing more at home, raising their own risk. To fund the internal lending, parents increase external borrowing from domestic German banks by 4.1% and from domestic nonbanks by 15%. Parents do not borrow from other group subsidiaries. As a result, parent probability of default (PD) rises by roughly 25% relative to the mean. At the consolidated MNC level, both aggregate bank and nonbank credit rise, and the exposure-weighted group PD increases accordingly, meaning German lenders bear higher total risk as a direct consequence of a foreign CCyB.
Demand vs. supply decomposition. Riskier parents borrow less incrementally, while safer parents borrow the most which is inconsistent with lender risk-shifting but consistent with demand-driven precautionary behavior.
Policy implication. Even under mandatory reciprocity, which ensures all banks apply the same CCyB to cross-border exposures, CCyBs leak internationally through the firm channel. Macroprudential tightening in one jurisdiction shifts credit exposure and default risk toward the parent’s home country, where no CCyB is active, undermining the intended containment of systemic risk and highlighting the limits of nationally calibrated tools in an integrated financial system.
How CCyBs travel – Internal capital markets & domestic borrowing
Authors: Björn Imbierowicz, Axel Loeffler, Steven Ongena, Ursula Vogel
From: Deutsche Bundesbank, University of Zurich
Banking groups, nonbank affiliates, and macroprudential leakage
In this paper Bruno Albuquerque, Eugenio Cerutti, Melih Firat, and Benedikt Kagerer analyze whether tighter macroprudential regulation incentivizes banking groups to route credit through their own affiliated nonbank financial institutions (NBFIs) to partially offset the constraint. If so, what does this mean for cross-border credit supply and bank–nonbank interconnectedness ?
The authors use granular syndicated corporate loan data from Dealogic covering 963 banking groups across 27 countries from 2005Q1 to 2023Q4. A key methodological contribution is a novel time-varying banking group ownership dataset, built using SEC filings, FINRA BrokerCheck, national registries, and large language models, that maps both bank and nonbank subsidiaries to their ultimate parent across time, filling a major gap in existing data.
Findings
- Banks contract, NBFI subsidiaries expand. A one standard deviation macroprudential policy (MaPP) tightening reduces lending by bank subsidiaries by 1%, while NBFI subsidiaries within the same banking group expand lending by 2% relative to bank subsidiaries and 1.0% in absolute terms.
- More than half the contraction is offset. By reallocating to their NBFI affiliates, banking groups offset on average more than 50% of the adverse impact of MaPP tightening on group-level credit. The effect is strongest for banking groups with weaker balance sheets, which have the greatest incentive to mitigate regulatory constraints.
- U.S. banking groups dominate the effect. Results are driven primarily by U.S. banking groups and, to a lesser extent, euro-area groups. Among NBFI types, investment banks and broker-dealers account for most of the lending adjustment.
- Strategic reallocation by direction of shock. When MaPP tightens abroad (host country), parent banks channel lending through both domestic and host-country NBFI subsidiaries, which typically fall outside the regulatory perimeter. When tightening occurs at home, parents reallocate toward foreign affiliates.
- Independent NBFIs behave oppositely. NBFIs not affiliated with banking groups actually reduce lending following MaPP tightening, consistent with limited access to stable internal funding and competitive crowding-out by bank-owned NBFIs in markets where banking groups are dominant.
- No evidence of increased risk-taking or credit misallocation. Although NBFI subsidiaries lend more to relatively riskier borrowers on average, the incremental lending following MaPP shocks is not disproportionately concentrated in high-risk segments.
Conclusion: Where the Imbierowicz et al., paper shows that MNC firms bypass CCyBs via internal debt reallocated through parent companies, the Albuquerque et al. paper shows that banking groups bypass loan-supply MaPP constraints via internal credit reallocated through NBFI subsidiaries. Both papers document an intra-group reallocation channel that partially neutralizes macroprudential policy.
Banking on Nonbanks
Authors: Bruno Albuquerque, Eugenio Cerutti, Melih Firat, Benedikt Kagerer
From: IMF, University of Cambridge
