Assessing the cyclical behaviour of bank capital buffers in a finance-augmented macro-economy

Alberto Montagnoli, Kostas Mouratidis and Kemar Whyte

Journal of International Money and Finance, 2021, vol. 110, issue C

Abstract: This paper empirically analyses how the banks’ capital buffers change with the business cycle. We extract the cycle component using univariate and multivariate filters to document how buffers behave. We also account for the impact of financial factors on capital buffers over the business cycle. Using a large panel of banks for the period 2000–2014, we document evidence that once we account for the impact of financial factors on the business cycle, capital buffers behave more pro-cyclically than previously found in the literature. Furthermore, we provide evidence that large commercial banks react differently to business cycle movements compared to small banks. Overall, these results have important implications for the development of macroprudential policy tools for the global financial system.

Keywords: Pro-cyclicality; Capital buffers; Business cycle; Financial cycle; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: E32 G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Assessing the Cyclical Behaviour of Bank Capital Buyers in a Finance-Augmented Macro-Economy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:110:y:2021:i:c:s0261560620302126

DOI: 10.1016/j.jimonfin.2020.102256

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