Measures to tame credit growth: Are they effective?

- We focus on policy measures taken in CEE countries to tame credit growth.
- Data from a survey conducted on eleven central banks are used.
- We assess the effectiveness of the measures via a fixed effects model.
- We find some impact of certain policy measures.

This paper focuses on policy measures taken to curb bank credit growth in the private sector in the pre-crisis period 2003-2007. Our analysis is based on an original survey conducted in 2010 on eleven central banks in Central and Eastern Europe (CEE). The findings reveal substantial policy intervention: a total of 82 measures were implemented in CEE during the period considered. The paper presents a panel data analysis of the effectiveness of the policy measures adopted in the region. The overall results indicate that certain measures - particularly asset classification and provisioning rules and loan eligibility criteria - might have been effective in taming bank credit growth, especially if applied in the context of more general policy measures featuring a combination of various instruments. However, in countries in which the authorities managed to somewhat decrease the flows of bank credit into the economy, the measures were often circumvented via direct, cross-border credit from foreign banks and credit provided by domestic, non-bank financial companies.