The countercyclical capital buffer and international bank lending: Evidence from Canada

David Xiao Chen and Christian Friedrich

Journal of International Money and Finance, 2023, vol. 139, issue C

Abstract: We examine the impact of the recently introduced Basel III countercyclical capital buffer (CCyB) on foreign lending activities of Canadian banks. By exploiting the variation in CCyB rates across countries, we overcome the identification challenge associated with limited time-series evidence on the CCyB's use in individual jurisdictions. We show that in response to a 1-percentage-point tightening announcement in a foreign CCyB, the growth rate of cross-border lending between Canadian banks and borrowers abroad decreases by 12-17 percentage points. The direction of this effect is likely driven by the CCyB's unique reciprocity rule, which also subjects foreign banks to domestic regulation.

Keywords: Countercyclical capital buffer; International banking; Canada (search for similar items in EconPapers)
JEL-codes: E32 F21 F32 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: The Countercyclical Capital Buffer and International Bank Lending: Evidence from Canada (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:139:y:2023:i:c:s0261560623001638

DOI: 10.1016/j.jimonfin.2023.102962

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