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Banks’ regulatory capital buffer and the business cycle: evidence for German savings and cooperative banks

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Author Info
Stolz, Stephanie
Wedow, Michael

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Abstract

This paper analyzes the effect of the business cycle on the regulatory capital buffer of German savings and cooperative banks in the period 1993–2003. The capital buffer is found to fluctuate anticyclically over the business cycle. The fluctuation is stronger for savings banks than for cooperative banks, as, for savings banks, risk-weighted assets fluctuate more strongly with the business cycle. Further, low-capitalized banks do not catch up with their wellcapitalized peers. The gap between low-capitalized and well capitalized banks even widened over the observation period. Finally, low-capitalized banks do not decrease risk-weighted assets in a business cycle downturn by more than well-capitalized banks. This finding seems to imply that their low capitalization does not force them to retreat from lending.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2005,07.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp2:4262

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Keywords: Capital Regulation Bank Capital 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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Cited by:
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  1. Buch, Claudia M. & Schertler, Andrea & von Westernhagen, Natalja, 2006. "Heterogeneity in lending and sectoral growth : evidence from German bank-level data," Discussion Paper Series 2: Banking and Financial Studies 2006,04, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  2. Koetter, Michael & Poghosyan, Tigran, 2008. "The implications of latent technology regimes for competition and efficiency in banking," Discussion Paper Series 2: Banking and Financial Studies 2008,15, Deutsche Bundesbank, Research Centre. [Downloadable!]
  3. Jokipii, Terhi & Milne, Alistair, 2007. "The Cyclical Behaviour of European Bank Capital Buffers," SIFR Research Report Series 56, Swedish Institute for Financial Research. [Downloadable!]
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