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Assessing the Efficiency of Bank of Russia Macroprudential Policy Aimed at Limiting Unsecured Consumer Lending Using the Modified Difference-in-Differences Method

Henry Penikas

After the 2020 pandemic, unsecured consumer lending started growing as much as at the pre-crisis times. The Bank of Russia is responsible for overall financial stability. To curb emerging risks, it again activated disincentive macroprudential measures (risk-weight add-ons), and expects to obtain the right to implement prohibiting measures. To further use the two groups of measures, the regulator has to know the efficiency of these measures. Conventional approaches of the Bank for International Settlements (BIS) and the difference-in-differences method deliver poorly interpretable results. This is because of the fact that they do not account for the complex process of measures implementation (including its multistep nature) and the banks’ reactions to these measures. That is why we need to modify the difference-in-differences approach. Due to such modification, we are able to trace the scope of efficient measures’ application. As many as 10% of banks with the proportion of consumer loans to assets in excess of 20% reduce such a share by 0.3 pp. per quarter for each 100 pp. of the risk-weight add-on starting from the measure announcement date. As many as 70% of banks with the proportion of consumer loans to assets in excess of 1.5% tend to decrease overall lending pace by 2–6 pp. per quarter for each 100 pp. of the risk-weight add-on starting from the measure application date.

Assessing the Efficiency of Bank of Russia Macroprudential Policy Aimed at Limiting Unsecured Consumer Lending Using the Modified Difference-in-Differences Method

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Last updated on: 24.12.2021