The Effect of U.S. Stress Tests on Monetary Policy Spillovers to Emerging Markets

Arbeitspapier

This paper shows that monetary policy and prudential policies interact. U.S. banks issue more commercial and industrial loans to emerging market borrowers when U.S. monetary policy eases. The effect is less pronounced for banks that are more constrained through the U.S. bank stress tests, reflected in a lower minimum capital ratio in the severely adverse scenario. This suggests that monetary policy spillovers depend on banks' capital constraints. In particular, during a period of quantitative easing when liquidity is abundant, banks are more flexible, and the scope for adjusting lending is larger when they have a bigger capital buffer. We conjecture that bank lending to emerging markets during the zero-lower bound period would have been even higher had the United States not introduced stress tests for their banks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7955

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Foreign Exchange ; International Financial Markets ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: U.S. bank lending ; stress tests ; emerging markets ; monetary policy spillovers

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Liu, Emily ; Niepmann, Friederike ; Schmidt-Eisenlohr, Tim
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/214957
• Last update: 10.03.2025, 11:43 AM CET