International Banking and Cross-Border Effects of Regulation: Lessons from the Netherlands

The large and concentrated international activities of Dutch banks make the Netherlands particularly relevant for assessing the outward transmission of prudential policies. Analysis of the quarterly international claims of 25 Dutch banks in 63 countries over 2000-2013 indicates that Dutch banks increase lending in countries that tighten prudential regulation. This result is driven particularly by larger banks; banks with higher deposit ratios; by lending to advanced economies; and by lending in the post-crisis period. The result is not significant in most other sub-samples. These findings suggest that banks react to changes in local prudential regulation via foreign lending – which could come either from regulatory arbitrage, or from signaling effects of prudential policy on country risk. This contributes to the case for the reciprocation of macroprudential policy.
 
Keywords: macroprudential policies, international banking, bank credit, spillovers.
JEL classification: F42, F44, G15, G21.

Working paper no. 520.