Did macropru reduce volatility during COVID?
The experience from the early stages of the Corona Crisis largely support the empirical evidence on the effectiveness of macroprudential regulations. In 2020 Q1, as markets experienced unprecedented volatility and it became clear there would be a sharp global recession, bank resilience was not a prominent concern. Tighter macroprudential regulations over the previous decade appeared to mitigate issues around banks amplifying the initial shock (as occurred in 2008). Countries with tighter macroprudential policy stances also appear to have suffered less of a decline in equity markets—possibly because the regulations had previously mitigated credit growth. At the same time, however, liquidity dried up, markets became dislocated, and other sectors experienced significant stress (such as money market funds and many bond markets). These sectors were outside the purview of many of the macroprudential tools discussed in this paper, but also where some of the risks may have shifted through spillovers and leakages as banks responded to earlier macroprudential regulations.
The International Aspects of Macroprudential Policy
Author: Kristin J. Forbes
From: MIT
Euro area’s experience
Altavilla and al. use proprietary data on participation in central bank liquidity operations, high-frequency reactions to monetary policy announcements, and confidential supervisory information on bank capital requirements to analyze the effectiveness of monetary, microprudential and macroprudential policies in supporting bank lending in the euro area since the onset of the COVID crisis. Their finding include:
- Both microprudential and macroprudential measures effectively reduced regulatory capital requirements, thus complementing monetary policy action by providing ample space for banks to support the economy, with an estimated contribution to loan growth of around 2.2 percentage points;
- There is strong complementarity across these measures: liquidity provision measures complemented by microprudential and macroprudential interventions have been able to mitigate the adverse impact of COVID-19 on banks’ intermediation capacity;
- They find that in absence of the pandemic policies, firms’ employment could decline by 1.4 percentage points over the next two years, equivalent to more than one million workers.
The great lockdown: pandemic response policies and bank lending conditions
Authors: Carlo Altavilla, Francesca Barbiero, Miguel Boucinha, Lorenzo Burlon
From: ECB
