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The Cyclical Behavior of Bank Capital Buffers in an Emerging Economy: Size Does Matter

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  • Andrés Felipe García-Suaza
  • José E. Gómez-González
  • Andrés Murcia Pabón
  • Fernando Tenjo-Galarza

Abstract

Using a panel of Colombian banks and quarterly data between 1996:1 and 2010:3, we study the relationship between short-run adjustments in bank capital buffers and the business cycle. We follow a partial adjustment framework and control for several variables that have been identified as important determinants of bank capital buffers in previous studies, and find that bank capital buffers vary over the business cycle. We are able to identify a negative co-movement of capital buffers and the business cycle. However, we also find that capital buffers of small and large banks behave asymmetrically during the business cycle. While the former appear to be constant over time, once the appropriate set of control variables is used, the latter present a countercyclical behavior. Our results suggest the possible need of the implementation of regulatory policy measures in developing countries.

Suggested Citation

  • Andrés Felipe García-Suaza & José E. Gómez-González & Andrés Murcia Pabón & Fernando Tenjo-Galarza, 2011. "The Cyclical Behavior of Bank Capital Buffers in an Emerging Economy: Size Does Matter," Borradores de Economia 650, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:650
    DOI: 10.32468/be.650
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank capital buffers; Credit risk; Regulation; Colombia.;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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