Empirical Evidence on the Effectiveness of Capital Buffer Release

Vasja Sivec and Matjaž Volk
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Vasja Sivec: STATEC/ANEC

International Journal of Central Banking, 2023, vol. 19, issue 3, 139-173

Abstract: With the new regulatory framework, known as Basel III, policymakers introduced a countercyclical capital buffer. Due to its recent introduction, empirical research on its effects is limited. We analyze a unique policy experiment to evaluate the effects of buffer release. In 2006, the Slovenian central bank introduced a temporary deduction item in the capital calculation, creating an average capital buffer of 0.8 percent of risk-weighted assets. It was released at the start of the financial crisis in 2008 and is akin to a release of a countercyclical capital buffer. We estimate its impact on bank behavior. After its release, firms borrowing from banks holding 1 pp higher capital buffer received 11 pp more in credit. Also, we find the impact was greater for healthy firms, and it increased loan loss provisioning for firms in default.

JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Empirical Evidence on the Effectiveness of Capital Buffer Release (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2023:q:3:a:4

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