The importance of prudential regulations in the process of transmitting monetary policy to economy

Abstract

The main aim of prudential regulations is to increase the stability of financial systems; however, such regulations also increase the risk-taking tendency of banks, they encourage them to combine and limit their lending possibilities with, at the same time, lowering the efficiency of monetary policy in affecting economic processes. Thus, it occurs as a reasonable solution to integrate macroprudential supervision with monetary policy of the central bank and to subsequently limit the pro-cycle character of these regulations. The aim of this article is to discuss the importance of the regulatory channel in the process of transmitting impulses of monetary policy into economy and to overview the results of research, which analyzed the influence of macroprudential regulations on bank lending policy as well as their sensitivity towards monetary policy of the central bank.