Has Macroprudential Regulation Affected Marginal Borrowers? Evidence From South Africa

Abstract

Bank regulation aimed at strengthening the resilience of the financial system can also prompt adjustments in lending and borrowing decisions. This paper examines how South Africa's credit market has responded to macroprudential policy measures to evaluate whether financial stability objectives are achieved at the expense of an equitable credit allocation. Using firm-level tax data, banking sector time series and a comprehensive regulatory index, we find that Basel III reforms reduced lending to households, especially if poor, to the benefit of firms, especially if large. We also document that regulation triggers lenders' adverse selection by penalising more creditworthy enterprises.