Banks’ Capital Buffer, Risk and Performance in the Canadian Banking System: Impact of Business Cycles and Regulatory Changes
AbstractUsing quarterly financial statements and stock market data from 1982 to 2010 for the six largest Canadian chartered banks, this paper documents positive co-movement between Canadian banks’ capital buffer and business cycles. The adoption of Basel Accords and the balance sheet leverage cap imposed by Canadian banking regulations did not change this cyclical behaviour of Canadian bank capital. We find Canadian banks to be well-capitalized and that they hold a larger capital buffer in expansion than in recession, which may explain how they weathered the recent subprime financial crisis so well. This evidence that Canadian banks ride the business and regulatory periods underscores the appropriateness of a both micro- and a macro-prudential “through-the-cycle” approach to capital adequacy as advocated in the proposed Basel III framework to strengthen the resilience of the banking sector.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 44105.
Date of creation: 31 Jan 2013
Date of revision:
Capital Buffer; Risk; Performance; Basel Accords; Regulation; Business Cycles; Canadian Banks;
Other versions of this item:
- Guidara, Alaa & Lai, Van Son & Soumaré, Issouf & Tchana, Fulbert Tchana, 2013. "Banks’ capital buffer, risk and performance in the Canadian banking system: Impact of business cycles and regulatory changes," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3373-3387.
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-02-08 (Accounting & Auditing)
- NEP-ALL-2013-02-08 (All new papers)
- NEP-BAN-2013-02-08 (Banking)
- NEP-CBA-2013-02-08 (Central Banking)
- NEP-EFF-2013-02-08 (Efficiency & Productivity)
- NEP-RMG-2013-02-08 (Risk Management)
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