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The Cyclical Behaviour of European Bank Capital Buffers

Terhi Jokipii and Alistair Milne ()

No 56, SIFR Research Report Series from Institute for Financial Research

Abstract: Using an unbalanced panel of accounting data from 1997 to 2004 and controlling for individual bank costs and risk, we find capital buffers of the banks in the EU15 have a significant negative co-movement with the cycle. For banks in the accession countries there is significant positive co-movement. Capital buffers of commercial and savings banks, and of large banks, exhibit negative co-movement. Those of co-operative and smaller banks exhibit positive co-movement. Speeds of adjustment are fairly slow. We interpret these results and discuss policy implications, noting that negative co-movement of capital buffers will exacerbate the procyclical impact of Basel II.

Keywords: Bank capital; bank regulation; business cycle fluctuations (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007-07-15
New Economics Papers: this item is included in nep-ban, nep-bec, nep-eec, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: The cyclical behaviour of European bank capital buffers (2008) Downloads
Working Paper: The cyclical behaviour of European bank capital buffers (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sifrwp:0056

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