Effect of macroprudential instruments on the composition of bank revenue

Abstract

This study investigates the effect of the implementation of restrictive macro-prudential policies on bank revenue composition. Specifically, we analyze changes in theratio of non-interest income to bank revenue, where bank revenue is defined as the sum ofinterest income and non-interest income. To do so, we estimate fixed-effects panel regres-sions using quarterly data from 557 banks across 27 countries, including both emergingand developed economies, covering the period from 2010 to 2021. Our results indicatethat the implementation of macroprudential policies increases the share of non-interestincome in the composition of banks’ revenue, particularly through restrictions on foreigncurrency lending (LFC) and foreign exchange exposure (LFX). These results highlightthe potential effects of macroprudential instruments on bank profitability and revenuecomposition, which financial regulators should take into account when designing policiesto enhance financial stability.