Banks' regulatory capital buffer and the business cycle: evidence for German savings and cooperative banks

Stephanie Stolz and Michael Wedow

No 2005,07, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: This paper analyzes the effect of the business cycle on the regulatory capital buffer of German savings and cooperative banks in the period 1993-2003. The capital buffer is found to fluctuate anticyclically over the business cycle. The fluctuation is stronger for savings banks than for cooperative banks, as, for savings banks, risk-weighted assets fluctuate more strongly with the business cycle. Further, low-capitalized banks do not catch up with their wellcapitalized peers. The gap between low-capitalized and well capitalized banks even widened over the observation period. Finally, low-capitalized banks do not decrease risk-weighted assets in a business cycle downturn by more than well-capitalized banks. This finding seems to imply that their low capitalization does not force them to retreat from lending.

Keywords: Capital Regulation; Bank Capital; Business Cycle Fluctuations (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-ban, nep-fin, nep-fmk, nep-mac and nep-reg
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Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp2:4262

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