Effects of credit restrictions in the Netherlands and lessons for macroprudential policy

Interesting BIS paper by Gabriele Galati, Jan Kakes and Richhild Moessner:

Credit restrictions were used as a monetary policy instrument in the Netherlands from the 1960s to the early 1990s. We study the effects of credit restrictions being active on the balance sheet structure of banks and other financial institutions. We find that banks mainly responded to credit restrictions by making adjustments to the liability side of their balance sheets, particularly by increasing the proportion of long-term funding. Responses on the asset side were limited, while part of the banking sector even increased lending after the installment of a restriction. These results suggest that banks and financial institutions responded by switching to long-term funding to meet the restriction and shield their lending business. Arguably, the credit restrictions were therefore still effective in reaching their main goal, i.e. containing money growth.

How such measures were once seen as financially repressive. The research is using more supportive words for such measures now.