A Note on Bank Capital Buffer, Portfolio Risk and Business Cycle

Sine KONTBAY Busun () and Adnan Kasman ()
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Sine KONTBAY Busun: Dokuz Eylül University, Faculty of Business, Department of Economics
Adnan Kasman: Dokuz Eylül University, Faculty of Business, Department of Economics

Ege Academic Review, 2015, vol. 15, issue 1, 1-7

Abstract: This paper examines the impact of business cycle on bank capital buffer and portfolio risk using quarterly data for commercial banks operating in the Turkish banking industry for the period 2002Q1-2012Q2. The results indicate that the business cycle and capital buffer are negatively related, suggesting that banks’ capital buffers increase (decrease) as economic conditions worsen (improve). The results also indicate that banks default risk has a positive and significant impact on capital buffer, while capital buffer has a negative and significant impact on default risk. The results further suggest that banks do not benefit from revenue diversification and larger banks hold less capital buffer. Finally, banks that earn higher profit hold more capital buffer and banks that make more profit are exposed to less risk.

Keywords: Capital buffer; portfolio risk; business cycle; Turkish banking (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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