Economics & Finance / Finance & Investment / Financial Regulation & Reform
Does Macroprudential Policy Leak? UK Experiment Shows 1/3 of Effect Lost to Foreign Banks
Does Macroprudential Regulation Leak? Evidence from a UK Policy Experiment
Why does macroprudential regulation sometimes fail? This video dives into a groundbreaking 2012 study by Shekhar Aiyar, Charles Calomiris, and Tomasz Wieladek, using a unique UK policy experiment from 1998 to 2007. The UK's Financial Services Authority imposed dynamic capital requirements on domestic banks, but foreign bank branches—exempt from these rules—stepped in to fill the gap. The result? A massive 29.4% leak, canceling out nearly one-third of the intended credit control. Discover the three conditions needed for macroprudential policy to work, why capital requirements must be binding, and how international coordination is crucial to prevent regulatory arbitrage. If you think capital buffers alone can tame credit cycles, this video will change your mind.
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