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Banks' regulatory capital buffer and the business cycle: Evidence for Germany

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  • Stolz, Stéphanie
  • Wedow, Michael

Abstract

This paper analyzes the effect of the business cycle on the regulatory capital buffers of German local banks in the period 1993-2004. The capital buffers are found to fluctuate countercyclically over the business cycle. The evidence supports that low-capitalized banks do not catch up with their well-capitalized peers over the observation period and they do not decrease risk-weighted assets during a recession. This finding suggests that their low capitalization does not force them to retreat from lending.

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  • Stolz, Stéphanie & Wedow, Michael, 2011. "Banks' regulatory capital buffer and the business cycle: Evidence for Germany," Journal of Financial Stability, Elsevier, vol. 7(2), pages 98-110, June.
    • Handle: RePEc:eee:finsta:v:7:y:2011:i:2:p:98-110
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