DOI: doi.org/10.71734/DP-2026–12

Macroprudential policies are designed to make banking systems safer. But in an integrated corporate world, their effects may not stop where regulators intend them to. In this paper, we study how foreign countercyclical capital buffer (CCyB) increases affect multinational corporations (MNCs) and show that tighter regulation abroad can shift credit risk across borders rather than reduce it. The key mechanism is the internal capital market of multinational firms.

Countercyclical capital buffers raise banks’ capital requirements when credit growth is strong. Due to mandatory reciprocity, both domestic and foreign banks must apply the higher buffer to exposures in the activating country. This should boost banks’ loss-absorbing capacity and reduce bank lending to firms located there. However, CCyBs do not apply to firms’ internal financing. Multinational groups can move funds between parents and subsidiaries, potentially offsetting the intended effects of CCyBs. We ask whether CCyBs reduce banks’ credit provision to firms and whether their impact is neutralized by internal reallocation within multinational groups.

Foreign CCyBs reduce bank credit to subsidiaries …

We exploit a clean empirical setting by looking at MNCs with German parents and foreign subsidiaries. Germany did not activate a CCyB between 2013 and 2019, while many countries hosting German subsidiaries did. Using granular German credit register data combined with firm-level ownership and balance sheet information, we track how bank and non-bank lending, internal debt flows, and borrower risk respond to foreign CCyB increases.

We observe that CCyBs work as intended at the bank-firm level. When a subsidiary’s host country raises its CCyB by one percentage point, German bank lending to that subsidiary falls by roughly 10 percent. This contraction occurs both because existing loans shrink and because bank-firm relationships are more likely to be terminated. In contrast, lending by non-banks, which are not subject to CCyB regulation, does not respond. At face value, foreign macroprudential tightening appears to reduce bank credit to affected firms.

… but multinational internal capital markets fully offset the shock …

The central result of the paper is that this bank credit contraction does not reduce subsidiaries’ overall funding. Subsidiaries replace lost bank credit by borrowing more from their parent companies. Internal debt from parents increases strongly and systematically following CCyB increases abroad. Importantly, this adjustment occurs entirely through debt, not through equity injections. Parents do not recapitalize subsidiaries but lend more to them.

This internal substitution is effectively complete. Total liabilities, leverage, and probabilities of default of affected subsidiaries remain unchanged. From the subsidiary’s perspective, the CCyB tightening is neutralized. The entirety of the decline in bank credit is replaced one-for-one by internal funding from the parent company.

… and increase parent companies’ leverage

Internal support to subsidiaries must be financed somewhere. We therefore examine how parent firms respond. Parents with subsidiaries affected by foreign CCyB increases borrow more externally in Germany. Bank borrowing by parents rises by about 4 percent, while nonbank borrowing increases by roughly 15 percent. Parents do not draw funds from other subsidiaries. Instead, they turn to domestic financial markets.

This refinancing also has clear risk implications. Parents’ probability of default increases by around 25 percent relative to the average parent probability of default. In other words, the stability achieved at the subsidiary level comes at the cost of higher leverage and risk at the parent level.

CCyBs shift risk across borders rather than eliminating it

Examining external lending at the multinational group level reveals a broader spillover. Although bank credit to subsidiaries abroad contracts, total lending by German banks and non-banks to the multinational group increases. The parent’s refinancing response more than offsets the initial contraction at the subsidiary level. As a result, German lenders’ exposure to these MNCs rises, and the exposure-weighted default risk of the entire group increases for these lenders.

Importantly, this does not imply that global consolidated leverage necessarily rises. Our data capture the exposure of German lenders. The results therefore reflect a reallocation of credit and risk toward the parent’s home jurisdiction. CCyB tightening reduces risk locally but increases it elsewhere. These patterns are also consistent with precautionary overborrowing. CCyB activation often signals a broader and persistent tightening of macroprudential policy in the host country. Facing the prospect of continued or repeated funding constraints abroad, parents borrow defensively to insure their internal capital markets. Because domestic and foreign bank credit are imperfect substitutes, domestic borrowing becomes the natural buffer. This behavior is individually rational for firms but generates a systemic externality. Risk migrates toward jurisdictions that do not tighten policy themselves, even under full regulatory reciprocity in banking.

Our findings highlight a firm-driven leakage channel of macroprudential policy. CCyBs reduce bank lending where they are applied, but multinational internal capital markets of firms neutralize these effects at the subsidiary level and reallocate leverage and risk across borders. This underscores the limits of purely national macroprudential tools in integrated economies and points to the importance of international coordination when assessing the effectiveness and side effects of financial regulation.

Imbierowicz, B., A. Loeffler, S. Ongena, U. Vogel (2026), How CCyBs travel – Internal capital markets & domestic borrowing, Bundesbank Discussion Paper, No 12/2026