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Macroprudential Policy and Intra-Group Dynamics: The Effects of Reserve Requirements in Brazil

We examine whether liquidity dynamics within banking groups matter for the transmission of macroprudential policy. Using matched bank headquarters-branch data for identification, we find a lending channel of reserve requirements for municipal branches whose headquarters are more exposed to the policy tool. The result is driven by the 2008–2009 crisis and is stronger for state-owned branches, especially when being less profitable and liquidity constrained. These findings suggest the presence of cross-regional distributional effects of macroprudential policies operating via internal capital markets.

01. December 2021

Authors Chris Becker Matias Ossandon Busch Lena Tonzer

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