The Impacts of Macroprudential Regulations on Extreme Episodes in Bank Flows : Whose Policy Helps and Whose Policy Harms?

Using a sample of pairwise bank lending from source countries to recipient countries, we find mixed evidence on how macroprudential policies implemented by different counterparties affect the incidence of extreme episodes (i.e. surges or sudden stops) in international bank flows. Tighter regulation in capital recipient country is effective in constraining surges in bank flows but ineffective in reducing the incidence of sudden stops. Capital source country’s regulation exacerbates the occurrence of surges and sudden stops. Tightened macroprudential stance of the United States demonstrates efficacy in mitigating both types of extreme episodes