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The countercyclical capital buffer and international bank lending: Evidence from Canada

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  • Chen, David Xiao
  • Friedrich, Christian

Abstract

We examine the impact of the recently introduced Basel III countercyclical capital buffer (CCyB) on foreign lending activities of Canadian banks. By exploiting the variation in CCyB rates across countries, we overcome the identification challenge associated with limited time-series evidence on the CCyB's use in individual jurisdictions. We show that in response to a 1-percentage-point tightening announcement in a foreign CCyB, the growth rate of cross-border lending between Canadian banks and borrowers abroad decreases by 12-17 percentage points. The direction of this effect is likely driven by the CCyB's unique reciprocity rule, which also subjects foreign banks to domestic regulation.

Suggested Citation

  • Chen, David Xiao & Friedrich, Christian, 2023. "The countercyclical capital buffer and international bank lending: Evidence from Canada," Journal of International Money and Finance, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:jimfin:v:139:y:2023:i:c:s0261560623001638
    DOI: 10.1016/j.jimonfin.2023.102962
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    3. Tihana Skrinjaric, 2023. "Introducing a composite indicator of cyclical systemic risk in Croatia: possibilities and limitations," Public Sector Economics, Institute of Public Finance, vol. 47(1), pages 1-39.

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    More about this item

    Keywords

    Countercyclical capital buffer; International banking; Canada;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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