N°26-56: How Do CCyBs Travel? Internal Capital Markets & Domestic Borrowing

Macroprudential capital buffers are meant to contain risk inside the activating jurisdiction. We show how they travel through multinational firms. Exploiting staggered countercyclical capital buffer (CCyB) activations in host countries of German multinationals' foreign subsidiaries, we trace a firm-side leakage channel. Subsidiary bank credit contracts by 10.6 percent per percentage-point CCyB, and falls relative to nonbank credit within the same borrower and quarter; subsidiary total borrowing shows no detectable change across creditor domiciles. German parents replace the lost credit with internal debt and refinance at home, raising the credit-weighted default risk of German lenders' exposure to these groups by about 20 percent of its mean. The affected multinational groups owe German lenders 26 billion euros, the exposure base on which this rerouting operates. With no German CCyB active, risk returns home.