Macroprudencial Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments

Recognition Program

Authors: Gabriel Jiménez, Steven Ongena, José-Luis Peydró and Jesús Saurina

Journal of Political Economy, Vol. 125, No 6, 2126-2177, December, 2017

To study the impact of macroprudential policy on credit supply cycles and real effects, we analyze dynamic provisioning. Introduced in Spain in 2000, revised four times, and tested in its countercyclicality during the crisis, it affected banks differentially. We find that dynamic provisioning smooths credit supply cycles and, in bad times, supports firm performance. A 1 percentage point increase in capital buffers extends credit to firms by 9 percentage points, increasing firm employment (6 percentage points) and survival (1 percentage point). Moreover, there are important compositional effects in credit supply related to risk and regulatory arbitrage by nonregulated and regulated but less affected banks.

This paper originally appeared as Barcelona GSE Working Paper 628
This paper is acknowledged by the Barcelona GSE Research Recognition Program