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

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  • Stolz, Stéphanie
  • Wedow, Michael

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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Bibliographic Info

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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