Bank Capital Buffer and Economic Growth: New Insights from the US Banking Sector
Faisal Abbas,
Imran Yousaf,
Shoaib Ali and
Wing-Keung Wong
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Faisal Abbas: UCP Business School, University of Central Punjab Lahore, Lahore 54000, Pakistan
JRFM, 2021, vol. 14, issue 4, 1-13
Abstract:
This research intends to explore the relationship between capital buffer, nominator effect, denominator effect, and economic growth for large insured commercial banks of the USA. The study applied a two-step system Generalized Method of Moment (GMM) framework by taking the unique and comprehensive dataset over the period extending from 2002 to 2018. The research found a countercyclical relationship between a capital buffer and economic growth. In the case of well-capitalized banks, this relationship is more critical than adequately capitalized banks. In the case of low-liquid banks, counter-cyclicality is more significant than high-liquid banks. The results also suggest the pro-cyclical relationship between nominator, denominator, and economic growth. The results remain consistent and robust with the use of the tier-one capital buffer ratio. The findings have implications for regulators to incorporate the counter-cyclicality between the capital buffer and economic growth, while formulating the policies for capital requirements in the future.
Keywords: commercial banks; countercyclical; pro-cyclical; two-step GMM (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:14:y:2021:i:4:p:142-:d:523474
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