The Pattern of Global Macroprudential Regulations and its Impact on Borrowing Costs

Cycles of monetary easing and tightening in major advanced economies (AEs) intensify their own financial cycles and, in turn, lead to abrupt ebbs and flows in movement of capital to emerging markets (EMs). This abrupt movement makes capital highly volatile and raises borrowing costs. Countercyclical macroprudential measures (MPMs) can smoothen cycles and reduce spillovers. Comparing MPMs implemented in select AEs and EMs shows that source countries mainly responsible for capital flows used MPMs less than the EMs did. Moreover, AE MPMs were more bank- based and targeted domestic credit demand rather than credit supply. As a result, cross-border flows migrated to the non-banking sector. Universalisation of a minimum set of broad-based MPMs that regulate credit-supply could reduce regulatory arbitrage across countries and financial institutions, as well as volatility and systemic risk in AE financial sectors. Greater use of broad- based regulation in EMs has improved their financial stability. G20 is the apt forum to achieve global consensus on working towards universal application of a minimum set of MPMs as in the case of minimum corporate taxation.