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The Behavior of Australian Banks¡¯ Capital Buffers: Pro- or Counter-Cyclical?

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  • Ha Vu
  • Sean Turnell

Abstract

This paper investigates the behavior of capital buffers of Australian banks to changes in the business cycle. More particularly, whether there is a behavioral difference between big and small banks, and whether the 2008-09 global financial crisis influenced bank behavior with respect to capital buffers. Applying the Generalized Method of Moments technique, we find the evidence to support pro-cyclical behavior of large banks, but counter-cyclical of small banks. Our results also show that banks with large size, large risky portfolio, and high lending growth rate tend to hold less capital than their peers. Finally, our results suggest that the latest financial crisis did induce banks to hold more capital.

Suggested Citation

  • Ha Vu & Sean Turnell, 2015. "The Behavior of Australian Banks¡¯ Capital Buffers: Pro- or Counter-Cyclical?," Applied Economics and Finance, Redfame publishing, vol. 2(1), pages 110-118, February.
    • Handle: RePEc:rfa:aefjnl:v:2:y:2015:i:1:p:110-118
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    Cited by:

    1. Carvallo Valencia, Oscar & Ortiz Bolaños, Alberto, 2018. "Bank capital buffers around the world: Cyclical patterns and the effect of market power," Journal of Financial Stability, Elsevier, vol. 38(C), pages 119-131.
    2. Lin, Karen Lai Kai, 2020. "The Cyclical Patterns of Capital Buffers: Evidence from Japanese Banks," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 53(1), pages 49-68, February.

    More about this item

    Keywords

    Australia; Business cycle; Capital buffers; Capital regulation; financial crisis.;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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