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The Latin American bank capital buffers and business cycle: Are they pro-cyclical?

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  • Carvallo, Oscar
  • Kasman, Adnan
  • Kontbay-Busun, Sine

Abstract

This paper examines capital buffer fluctuations over the business cycle and provides empirical evidence on determinants of capital buffers for the banking sectors of 13 Latin American and Caribbean countries for the period 2001–2012. Results indicate that there is a negative and significant relationship between regulatory capital buffers and GDP growth for five countries, while positive and significant for six. Banks’ adjustment costs, size, profitability and risk are significant determinants of buffers holdings. We present evidence that capital buffers are more likely to fluctuate pro-cyclically in those countries where costs of adjustment are lower and capital regulation is less stringent.

Suggested Citation

  • Carvallo, Oscar & Kasman, Adnan & Kontbay-Busun, Sine, 2015. "The Latin American bank capital buffers and business cycle: Are they pro-cyclical?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 148-160.
  • Handle: RePEc:eee:intfin:v:36:y:2015:i:c:p:148-160
    DOI: 10.1016/j.intfin.2015.02.003
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:finsta:v:38:y:2018:i:c:p:119-131 is not listed on IDEAS
    2. Cecilia Dassatti & Alejandro Pena & Jorge Ponce & Magdalena Tubio, 2015. "Countercyclical Capital Buffer: The Case of Uruguay," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(2), pages 251-285, July-Dece.
    3. repec:cml:incocp:5es-5 is not listed on IDEAS
    4. Carvallo Valencia, Oscar & Ortiz Bolaños, Alberto, 2018. "Bank capital buffers around the world: Cyclical patterns and the effect of market power," Journal of Financial Stability, Elsevier, vol. 38(C), pages 119-131.
    5. repec:sgh:erfinj:v:3:y:2018:i:1:p:1-26 is not listed on IDEAS
    6. repec:rjr:romjef:v::y:2019:i:1:p:57-71 is not listed on IDEAS
    7. Andres Murcia & Emanuel Kohlscheen, 2016. "Moving in tandem: bank provisioning in emerging market economies," BIS Working Papers 548, Bank for International Settlements.
    8. repec:eee:ecmode:v:67:y:2017:i:c:p:392-408 is not listed on IDEAS
    9. repec:cml:incocp:5en-5 is not listed on IDEAS
    10. repec:cml:moneta:v:iv:y:2016:i:2:p:233-273 is not listed on IDEAS

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