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Cyclical Effects of Bank Capital Buffers with Imperfect Credit Markets: international evidence

  • A. R. Fonseca
  • F. González
  • L. Pereira da Silva

This paper analyzes the cyclical effects of bank capital buffers using an international sample of 2,361 banks from 92 countries over the 1990-2007 period. We find that capital buffers reduce the bank credit supply but – through what could be “monitoring or signaling effects” – have also an expansionary effect on economic activity by reducing lending and deposit rate spreads. This influence on lending and deposit rate spreads is more pronunced in developing countries and during downturns. The results suggest that capital buffers have a counter-cyclical effect in these countries. Our data do not suggest differences in the cyclical effects of capital buffers between Basel I and Basel II.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps216.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 216.

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Date of creation: Oct 2010
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Handle: RePEc:bcb:wpaper:216
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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  1. Simon Kwan & Robert Eisenbeis, 1997. "Bank Risk, Capitalization, and Operating Efficiency," Journal of Financial Services Research, Springer, vol. 12(2), pages 117-131, October.
  2. Hubbard, R Glenn & Kuttner, Kenneth N & Palia, Darius N, 2002. "Are There Bank Effects in Borrowers' Costs of Funds? Evidence from a Matched Sample of Borrowers and Banks," The Journal of Business, University of Chicago Press, vol. 75(4), pages 559-81, October.
  3. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2011. "Cyclical Effects of Bank Capital Requirements with Imperfect Credit Markets," Working Papers Series 234, Central Bank of Brazil, Research Department.
  4. Jaap Bikker & Paul Metzemakers, 2004. "Is bank capital procyclical? A cross-country analysis," DNB Working Papers 009, Netherlands Central Bank, Research Department.
  5. Jokipii, Terhi & Milne, Alistair, 2008. "The cyclical behaviour of European bank capital buffers," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1440-1451, August.
  6. Armen Hovakimian & Edward Kane & Luc Laeven, 2003. "How Country and Safety-Net Characteristics Affect Bank Risk-Shifting," Journal of Financial Services Research, Springer, vol. 23(3), pages 177-204, June.
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  8. Hancock, Diana & Laing, Andrew J. & Wilcox, James A., 1995. "Bank capital shocks: Dynamic effects on securities, loans, and capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 661-677, June.
  9. Stefan Kerbl & Michael Sigmund, 2009. "Quantifying the Cyclicality of Regulatory Capital – First Evidence from Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 18, pages 93-103.
  10. Agénor, P.-R. & Alper, K. & Pereira da Silva, L., 2012. "Capital requirements and business cycles with credit market imperfections," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 687-705.
  11. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
  12. Lindquist, Kjersti-Gro, 2004. "Banks' buffer capital: how important is risk," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 493-513, April.
  13. James R. Barth & Gerard Caprio, Jr. & Ross Levine, 2002. "Bank Regulation and Supervision: What Works Best?," NBER Working Papers 9323, National Bureau of Economic Research, Inc.
  14. Stolz, Stéphanie & Wedow, Michael, 2005. "Banks' regulatory capital buffer and the business cycle: evidence for German savings and cooperative banks," Discussion Paper Series 2: Banking and Financial Studies 2005,07, Deutsche Bundesbank, Research Centre.
  15. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
  16. Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Working Papers 08-36, Bank of Canada.
  17. Gennotte, Gerard & Pyle, David, 1991. "Capital controls and bank risk," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 805-824, September.
  18. Cook, Douglas O & Spellman, Lewis J, 1994. "Repudiation Risk and Restitution Costs: Toward Understanding Premiums on Insured Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 439-59, August.
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