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The Cyclical Behaviour of Bank Capital Buffers: An Empirical Evidence for MENA Banking Systems

Zied Saadaoui

Review of Middle East Economics and Finance, 2015, vol. 11, issue 2, 145-182

Abstract: Bank exposure to systemic shocks induced the Basel Committee on Banking Supervision to introduce a countercyclical capital buffers’ requirement in its new regulatory framework (Basel III). But is this macro-prudential tool useful for Middle East and North African countries (MENA) countries’ banking systems? Should it be implemented in a homogenous way for all banks in these countries? Trying to give plausible answers to these questions weakly debated in the literature for the case of MENA banking systems, this study uses an enough representative sample of commercial banks based in 15 MENA countries. Estimating a partial adjustment framework using system generalized method of moments (GMM) with Windmeijer’s correction, we show that large banks and banks with high market power are more inclined to behave in a countercyclical way than small banks and banks with low market power. These results are robust to several sensitivity checks. Accordingly, we think that the implementation of countercyclical capital buffers in the MENA region should take into consideration bank-specific characteristics like size and market power.

Date: 2015
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DOI: 10.1515/rmeef-2013-0067

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