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The Cyclical Patterns of Capital Buffers: Evidence from Japanese Banks

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  • Lin, Karen Lai Kai

Abstract

This study explores the relationship between banks' choice of capital buffers and prevailing macroeconomic conditions. Considering the unique features of Japan's economy and diverse capital adequacy standards, I analyze the data of Japanese commercial banks from 2002 to 2012. I find a negative relationship between capital buffers and the phases of the business cycle, but a positive relationship for internationally active banks. The negative signs were larger in magnitude and of higher significance level when including crisis dummies. The findings suggest that the capital buffers of internationally active banks behave in a countercyclical manner; however, during crises, the capital buffer patterns became procyclical.

Suggested Citation

  • Lin, Karen Lai Kai, 2020. "The Cyclical Patterns of Capital Buffers: Evidence from Japanese Banks," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 53(1), pages 49-68, February.
    • Handle: RePEc:hit:hitjcm:v:53:y:2020:i:1:p:49-68
    DOI: 10.15057/30975
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    More about this item

    Keywords

    Bank regulation; Business cycle; Capital buffers; Counter-cyclical; Pro-cyclicality;
    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

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