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The cyclical behaviour of European bank capital buffers

Terhi Jokipii and Alistair Milne ()

Journal of Banking & Finance, 2008, vol. 32, issue 8, 1440-1451

Abstract: Using an unbalanced panel of accounting data from 1997 to 2004 and controlling for individual bank costs and risk, we find capital buffers of the banks in the EU15 have a significant negative co-movement with the cycle. For banks in the accession countries there is significant positive co-movement. Capital buffers of commercial and savings banks, and of large banks, exhibit negative co-movement. Those of co-operative and smaller banks exhibit positive co-movement. Speeds of adjustment are fairly slow. We interpret these results and discuss policy implications, noting that negative co-movement of capital buffers will exacerbate the pro-cyclical impact of Basel II.

Date: 2008
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Related works:
Working Paper: The Cyclical Behaviour of European Bank Capital Buffers (2007) Downloads
Working Paper: The cyclical behaviour of European bank capital buffers (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:32:y:2008:i:8:p:1440-1451

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