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The cyclical behaviour of European bank capital buffers

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  • 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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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0617netti.pdf
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Bibliographic Info

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
Date of revision:
Handle: RePEc:hhs:bofrdp:2006_017

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: bank capital; bank regulation; business cycle fluctuations;

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