The Unassuming Economist

“Financial sector supervision has focused on mitigating vulnerabilities. While earlier tightening of prudential regulation has halted new FX lending, the Polish Financial Supervision Authority (KNF) has recently acted to limit risks associated with the still-high outstanding stock of foreign-currency mortgages. Banks with significant foreign-currency exposure have been requested to retain dividends and further boost capital. In staff’s view, these measures, along with case-by-case restructuring of distressed FX-denominated mortgages, should be sufficient to address vulnerabilities in this loan segment. Read the full article…

A new IMF paper develops an analytical framework using bank lending survey data to investigate the effectiveness of macroprudential measures in containing housing booms in the euro area, the channels of transmission of such measures and their interaction with monetary policy. 

The authors findings suggest that macro-prudential instruments targeting the cost of bank capital would be effective in slowing down mortgage credit growth, and given similar channels of transmission, would reinforce the impact of monetary policy tightening. Read the full article…