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<p>This study examines the impact of macroprudential policies (MPPs) and institutional quality (IQ) on bank risk in 44 advanced and emerging economies from 2003 to 2021. It explores how the interaction between MPPs and IQ affects banking sector stability across different institutional environments. The relationship is examined using the two-step Generalized Method of Moments (GMM) approach. The results show that the impact of IQ alone is limited in containing bank risk across all country groups; in fact, weak institutions tend to amplify risk in emerging economies. Regarding MPPs, the AGMPPI (aggregated MPPs index), INMPPI (institution-targeted MPPs index), and several specific MPP instruments are found to be significant in both emerging and advanced economies, indicating that a large set of MPPs is more effective in containing bank risk. Additionally, institutional quality conditions the efficacy of both institution-targeted and borrower-targeted tools in advanced economies (AEs). In contrast, in emerging markets, the moderating role of governance is limited to institution-targeted instruments. Institutional quality is therefore critical for both the selection and effectiveness of MPPs instruments in countries operating under varying levels of governance. The findings highlight the need for governance reforms in emerging market economies (EMEs) to strengthen institutions, improve the effectiveness of MPPs, and promote financial stability.</p>

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Macroprudential Policies, Institutional Environment, and Bank Risk: A Cross-Country Analysis

  • 期刊论文

  • 发表日期：

    2026年3月4日

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  • Jitendra Kumar Chaurasiya,
  • Bhanu Pratap Singh,
  • Sujit Kumar

摘要

This study examines the impact of macroprudential policies (MPPs) and institutional quality (IQ) on bank risk in 44 advanced and emerging economies from 2003 to 2021. It explores how the interaction between MPPs and IQ affects banking sector stability across different institutional environments. The relationship is examined using the two-step Generalized Method of Moments (GMM) approach. The results show that the impact of IQ alone is limited in containing bank risk across all country groups; in fact, weak institutions tend to amplify risk in emerging economies. Regarding MPPs, the AGMPPI (aggregated MPPs index), INMPPI (institution-targeted MPPs index), and several specific MPP instruments are found to be significant in both emerging and advanced economies, indicating that a large set of MPPs is more effective in containing bank risk. Additionally, institutional quality conditions the efficacy of both institution-targeted and borrower-targeted tools in advanced economies (AEs). In contrast, in emerging markets, the moderating role of governance is limited to institution-targeted instruments. Institutional quality is therefore critical for both the selection and effectiveness of MPPs instruments in countries operating under varying levels of governance. The findings highlight the need for governance reforms in emerging market economies (EMEs) to strengthen institutions, improve the effectiveness of MPPs, and promote financial stability.