Empirical Evidence on the Effectiveness of Capital Buffer Release
Vasja Sivec (),
Matjaž Volk and
MPRA Paper from University Library of Munich, Germany
With the new regulatory framework, known as Basel III, policymakers introduced a countercyclical capital buffer. It subjects banks to higher capital requirements in times of credit excess and is released in a financial crisis. This incentivizes banks to extend credit and to buffer losses. Due to its recent introduction empirical research on its effects are limited. We analyse a unique policy experiment to evaluate the effects of buffer release. In 2006, the Slovenian central bank introduced a temporary deduction item in capital calculation, creating an average capital buffer of 0.8% 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 behaviour. After its release, firms borrowing from banks holding 1 p.p. higher capital-buffer received 11 p.p. more in credit. Also we find the impact was greater for healthy firms, and it increased loan-loss provisioning for firms in default.
Keywords: countercyclical capital buffer; macroprudential policy; credit; loan loss provisions (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-rmg and nep-tra
Date: 2018-01-02, Revised 2018-01-02
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:84323
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