Does macroprudential policy alleviate the adverse impact of COVID-19 on the resilience of banks?

ABSTRACT: This paper examines the resilience of banks as perceived by market participants during the COVID-19 crisis. We analyse how bank stock returns during January-March 2020 relate to the pre-crisis activation of macroprudential policy across 52 countries in a cross-sectional dimension. We find that, overall, a tighter macroprudential policy stance is beneficial for bank systemic risk, as assessed by equity market investors. A robust finding is that a perceived decrease in bank risk stems primarily from the use of credit growth limits, reserve requirements, and dynamic provisioning. By contrast, a pre-crisis build-up of capital surcharges on systemically important financial institutions seems to lower bank stock returns. Alternative bank risk indicators suggest that the latter is likely to be dr

SUBMITTER: Igan D 

PROVIDER: S-EPMC9666229 | biostudies-literature | 2023 Feb

REPOSITORIES: biostudies-literature