Basel III Capital Buffer Requirements and Credit Union Prudential Regulation: Canadian Evidence

Helyoth Hessou and Van Son Lai

No 2017-007, Working Papers from Department of Research, Ipag Business School

Abstract: Some Canadian provinces have already adopted Basel III rules for the oversight of their administrated credit unions. We analyze the importance of the Basel III additional capital buffer requirements for credit union prudential regulation. Based on a sample of the 100 largest credit unions in Canada from 1996 to 2014, we find that Canadian credit union capital buffers behave countercyclically over the business cycle. Further, credit unions hold a capital buffer bigger than the maximum buffer advocated under Basel III which is 5% of risk-weighted assets (RWA). These results suggest that, unlike commercial banks worldwide, credit unions, by and large, are already in compliance with the new Basel III buffer requirements. However, there is evidence that the capital buffers of low-capitalized credit unions are procyclical. These credit unions increased their RWA during booms but failed to build up additional capital accordingly. Hence, weakly capitalized credit unions are more likely to adjust their capital buffers if they are subject to Basel III capital buffer regulation.

Keywords: Capital regulation; Credit union capital; Business cycle fluctuations; Countercyclical capital buffer; Conservation capital buffer; Basel III (search for similar items in EconPapers)
Pages: 51 pages
Date: 2017-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://faculty-research.ipag.edu/wp-content/uploa ... IPAG_WP_2017_007.pdf (application/pdf)

Related works:
Journal Article: Basel III capital buffer requirements and credit union prudential regulation: Canadian evidence (2017)
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:ipg:wpaper:2017-007

Access Statistics for this paper

More papers in Working Papers from Department of Research, Ipag Business School Contact information at EDIRC.
Bibliographic data for series maintained by Ingmar Schumacher ().