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Are capital buffers pro-cyclical? Evidence from Spanish panel data

  • Juan Ayuso

    ()

    (Banco de España)

  • Daniel Pérez

    ()

    (Banco de España)

  • Jesús Saurina

    ()

    (Banco de España)

Registered author(s):

    In this paper, we analyse the relationship between the Spanish business cycle and the capital buffers held by Spanish commercial and savings banks. We build an incomplete panel of Spanish institutions from 1986 to 2000 –thus covering a complete business cycle– and estimate an equation for the behaviour of capital buffers that includes an indicator of the business cycle. Our findings are fairly robust and quite unequivocal. After controlling for other potential determinants of the surplus capital we find a robustly significant negative relationship between the business cycle and capital buffers. From a quantitative standpoint, an increase of 1 percentage point in GDP growth might reduce capital buffers by 17%. This relationship is, moreover, asymmetric, being closer during upturns. Accordingly, there is a case for taking into account the so-called pro-cyclicality problem in the final design of Basel II. Pillar 2 seems to be the right place to address the issue.

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0224e.pdf
    File Function: First version, October 2002
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    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0224.

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    Length: 23 pages
    Date of creation: Oct 2002
    Date of revision:
    Handle: RePEc:bde:wpaper:0224
    Contact details of provider: Web page: http://www.bde.es/
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