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We study the transmission of foreign macroprudential policy to domestic bank loan issuance in emerging markets via cross-border bank flows. We use the universe of bilateral cross-border bank credit transactions to destination countries matched to macroprudential policy action taken in source countries combined with bank balance sheet data in destination markets to document that a tightening of macroprudential policy in source countries reduces the positive impact of cross-border flows on the credit supply of banks in the destination. We show that the negative spillover effect of foreign macroprudential policy is only operational for capital-based and international-exposure policy tools. We also find evidence that macroprudential regulation performed by destination countries does not change the inward spillovers associated with cross-border flows.
