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The Behavior of Australian Banks¡¯ Capital Buffers: Pro- or Counter-Cyclical?

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Listed:
  • Ha Vu
  • Sean Turnell

Abstract

This paper investigates the behavior of capital buffers of Australian banks to changes in the business cycle. More particularly, whether there is a behavioral difference between big and small banks, and whether the 2008-09 global financial crisis influenced bank behavior with respect to capital buffers. Applying the Generalized Method of Moments technique, we find the evidence to support pro-cyclical behavior of large banks, but counter-cyclical of small banks. Our results also show that banks with large size, large risky portfolio, and high lending growth rate tend to hold less capital than their peers. Finally, our results suggest that the latest financial crisis did induce banks to hold more capital.

Suggested Citation

  • Ha Vu & Sean Turnell, 2015. "The Behavior of Australian Banks¡¯ Capital Buffers: Pro- or Counter-Cyclical?," Applied Economics and Finance, Redfame publishing, vol. 2(1), pages 110-118, February.
  • Handle: RePEc:rfa:aefjnl:v:2:y:2015:i:1:p:110-118
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    File URL: http://redfame.com/journal/index.php/aef/article/view/654/595
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    File URL: http://redfame.com/journal/index.php/aef/article/view/654
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    Citations

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    Cited by:

    1. Carvallo Valencia, Oscar Alfonso & Ortiz Bolaños, Alberto, 2018. "Bank capital buffers around the world: Cyclical patterns and the effect of market power," MPRA Paper 84617, University Library of Munich, Germany.

    More about this item

    Keywords

    Australia; Business cycle; Capital buffers; Capital regulation; financial crisis.;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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