We showthat macroprudential policies dampen the impact of global financial conditionson local bank credit cycles. For identification, we exploit exogenous variationin the U.S. VIX and household and business credit registers in a small openeconomy, where banks depend on foreign funding and macroprudential measuresvary over a full boom-bust cycle. When the VIX is low, tighter macroprudentialpolicies (i) reduce household lending, notably for riskier (FX and high DSTI)loans and by banks dependent on foreign funding and (ii) increase localcurrency lending to real-estate firms, while leaving business lending to otherfirms unchanged. Furthermore, such periods are associated with (iii) less totallending (to households and firms) and with a lower share of FX loans at thelocal level, suggesting a compositional shift toward (less risky) localcurrency loans. As a result, when the VIX is low, tighter macroprudentialpolicies (iv) dampen house prices and economic activity in areas with higherFX-loans.

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