Bank capital buffers around the world: Cyclical patterns and the effect of market power
Oscar Carvallo Valencia and
Alberto Ortiz Bolaños
Journal of Financial Stability, 2018, vol. 38, issue C, 119-131
We examine the effect of competition and business cycles on bank capital buffers around the world. We use a dataset of 3461 banks from 25 developed and 54 developing countries over the 2001–2013 period. Banks tend on average to exhibit pro-cyclical behavior. But capital buffers seem to be more pro-cyclical in developing countries. Our results show that more competition leads to higher buffers in developed countries but to lower buffers in developing ones. This evidence suggests that the “competition-stability” thesis adheres in developed economies, whereas “competition-fragility” makes more sense in developing countries. This asymmetric result may have important policy implications, particularly with regard to new, globally-negotiated capital adequacy standards.
Keywords: Bank capital buffers; Business cycle; Regulation; Market power (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:38:y:2018:i:c:p:119-131
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