New evidence on the resilience benefit of borrower-based measures when interest rates go up

Business

Borrower-based macroprudential measures are meant to provide a guardrail to counter an erosion of lending standards over time. This column explores whether such measures can contribute to more resilient bank profitability by mitigating the effects of higher interest rates on bank loan loss provisions. Higher interest rates are found to lead to larger loan loss provisions, especially for banks offering flexible-rate loans, but this effect is attenuated when borrower-based measures have been

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