Cross-border effects of regulatory spillovers: evidence from Mexico

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 20 October 2017

Working Paper No. 684
by Jagdish Tripathy

I study the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan-demand by the non-tradable sector to changes in household credit supply range from 1.6–3.5. These results emphasize the potential for cross-border effects of regulations in the presence of global banks.

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