The Determinants of Capital Buffer in Indonesian Banking

Agustinus Prasetyantoko () and Wahyoe Soedarmono
Additional contact information
Agustinus Prasetyantoko: GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: Using monthly data of 99 commercial banks during the period 2004-2007, we investigate whether capital buffer can be explained by bank-specific, business cycle, regulatory and institutional variables. In regards to the business cycle, we find evidence that bank capital buffer is procyclical. These finding becomes different, if we divide banks into two sub-groups according to bank size and market involvement. More importantly, larger banks and listed banks more involved in market activities, tend to increase their capital buffer during economic booms, but reduce it during economic downturns. These findings have regulatory implications for the Basel II implementation in Indonesia, notably in solving its procyclicality. For instance, small banks consolidations and supporting banks to more involve in market activities, as well as market discipline enforcement, become necessary. This paper also reveals that higher non-interest income enhances capital buffer.

Keywords: bank; capital buffer; Basel II; procyclical effect; Indonesia (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations:

Published in Financial Stability Review Bank of Indonesia, 2010, 15, pp.81-92

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00785102

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().