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The cyclical behaviour of European bank capital buffers

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Author Info
Jokipii, Terhi (Bank of Finland Research)
Milne , Alistair () (Bank of Finland and Cass Business School London)
Abstract

Using an unbalanced panel of commercial, savings and co-operative banks for the years 1997 to 2004 we examine the cyclical behaviour of European bank capital buffers. After controlling for other potential de-terminants of bank capital, we find that capital buffers of the banks in the accession countries (RAM) have a significant positive relationship with the cycle, while for those in the EU15 and the EA and the combined EU25 the relationship is significantly negative. We additionally find fairly slow speeds of ad-justment, with around two-thirds of the correction towards desired capital buffers taking place each year. We further distinguish by type and size of bank, and find that capital buffers of commercial and savings banks, and also of a sub-sample of large banks, exhibit negative co-movement. Co-operative banks and smaller banks on the other hand, tend to exhibit positive cyclical co-movement.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 17/2006.

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Length: 46 pages
Date of creation: 27 Sep 2006
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Handle: RePEc:hhs:bofrdp:2006_017

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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Related research
Keywords: bank capital; bank regulation; business cycle fluctuations;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Inês Drumond, 2008. "Bank Capital Requirements, Business Cycle Fluctuations and the Basel Accords: A Synthesis," FEP Working Papers 277, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  2. Bertrand Gruss & Silvia Sgherri, 2009. "The Volatility Costs of Procyclical Lending Standards: An Assessment Using a DSGE Model," Economics Working Papers ECO2009/07, European University Institute. [Downloadable!]
    Other versions:
  3. Kilponen , Juha & Milne, Alistair, 2007. "The lending channel under optimal choice of monetary policy," Research Discussion Papers 33/2007, Bank of Finland. [Downloadable!]
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