Working Paper: CEPR ID: DP14288
Authors: Carlo Altavilla; Miguel Boucinha; José Luis Peydr; Frank Smets
Abstract: We analyse the effects of national versus supranational banking supervision on bank risk-taking, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change in European banking supervision; (iii) high-frequency monetary policy surprises; (iv) cross-country differences within and outside the euro area. First, supranational supervision reduces credit supply to firms with high credit risk, but strengthens credit supply to firms without loan delinquencies, especially for banks operating in stressed countries. Results are driven by two mechanisms: the country’s institutional quality where banks operate, and bank-level systemic importance. Second, there are important complementarities between monetary policy and supervision: centralised supervision offsets high credit risk-taking induced by accommodative monetary policy, but not credit supply to more productive firms. Overall, we show that using multiple credit registers, first time in the literature, is crucial for external validity.
Keywords: Banking Supervision; Monetary Policy; Credit Risk; Euro Area Crisis
JEL Codes: E51; E52; E58; G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| supranational banking supervision (F33) | supply of credit to firms with high ex-ante and ex-post credit risk (G21) |
| supranational banking supervision (F33) | supply of credit to firms without loan delinquencies (G21) |
| centralized supervision offsets high credit risk-taking induced by accommodative monetary policy (E58) | credit supply to more productive firms (E51) |
| centralized supervision (H77) | credit supply to firms with high ex-ante and ex-post credit risk (G21) |
| institutional quality and systemic importance of banks (G21) | effects of banking supervision on credit risk-taking behavior (G28) |