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Empirical Evidence on the Effectiveness of Capital Buffer Release

Author

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  • Vasja Sivec

    (STATEC/ANEC)

  • Matjaz Volk

    (Bank of Slovenia)

Abstract

With the new regulatory framework, known as Basel III, policymakers introduced a countercyclical capital buffer. Due to its recent introduction, empirical research on its effects is limited. We analyze a unique policy experiment to evaluate the effects of buffer release. In 2006, the Slovenian central bank introduced a temporary deduction item in the capital calculation, creating an average capital buffer of 0.8 percent of risk-weighted assets. It was released at the start of the financial crisis in 2008 and is akin to a release of a countercyclical capital buffer. We estimate its impact on bank behavior. After its release, firms borrowing from banks holding 1 pp higher capital buffer received 11 pp more in credit. Also, we find the impact was greater for healthy firms, and it increased loan loss provisioning for firms in default.

Suggested Citation

  • Vasja Sivec & Matjaz Volk, 2023. "Empirical Evidence on the Effectiveness of Capital Buffer Release," International Journal of Central Banking, International Journal of Central Banking, vol. 19(3), pages 139-173, August.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:3:a:4
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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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