DP14288 Banking Supervision, Monetary Policy and Risk-Taking: Big Data Evidence from 15 Credit Registers

Author(s): Carlo Altavilla, Miguel Boucinha, José Luis Peydró, Frank Smets
Publication Date: January 2020
Date Revised: January 2021
Keyword(s): AnaCredit, Banking, euro area crisis, monetary policy, Supervision
JEL(s): E51, E52, E58, G01, G21, G28
Programme Areas: Financial Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14288

We analyse the effects of national versus supranational banking supervision on bank risk-taking, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change in European banking supervision; (iii) high-frequency monetary policy surprises; (iv) cross-country differences within and outside the euro area. First, supranational supervision reduces credit supply to firms with high credit risk, but strengthens credit supply to firms without loan delinquencies, especially for banks operating in stressed countries. Results are driven by two mechanisms: the country's institutional quality where banks operate, and bank-level systemic importance. Second, there are important complementarities between monetary policy and supervision: centralised supervision offsets high credit risk-taking induced by accommodative monetary policy, but not credit supply to more productive firms. Overall, we show that using multiple credit registers, first time in the literature, is crucial for external validity.