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Two-way interplays between capital buffers and credit growth: Evidence from French banks

Author

Listed:
  • Jérôme Coffinet

    (Banque de France - Banque de France)

  • Virginie Coudert

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Adrian Pop

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Cyril Pouvelle

    (Banque de France - Banque de France, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We assess the extent to which bank capital buffers exacerbate the cyclical behavior of credit. We empirically study the relationships between GDP growth, capital buffers and loan growth with firm-level data for French banks over the period 1993–2009. Based on panel data simultaneous equations and Granger causality tests, our findings point to mutually reinforcing mechanisms between capital buffers and loan growth, all the more as better quality capital is considered. Overall, those empirical results lend support to a countercyclical financial regulation focused on high-quality capital and loan growth smoothing.

Suggested Citation

  • Jérôme Coffinet & Virginie Coudert & Adrian Pop & Cyril Pouvelle, 2012. "Two-way interplays between capital buffers and credit growth: Evidence from French banks," Post-Print halshs-01511102, HAL.
    • Handle: RePEc:hal:journl:halshs-01511102
    DOI: 10.1016/j.intfin.2012.05.011
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    Cited by:

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    2. Vithessonthi, Chaiporn, 2016. "Deflation, bank credit growth, and non-performing loans: Evidence from Japan," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 295-305.
    3. Montagnoli, Alberto & Mouratidis, Konstantinos & Whyte, Kemar, 2021. "Assessing the cyclical behaviour of bank capital buffers in a finance-augmented macro-economy," Journal of International Money and Finance, Elsevier, vol. 110(C).
    4. Faisal Abbas & Imran Yousaf & Shoaib Ali & Wing-Keung Wong, 2021. "Bank Capital Buffer and Economic Growth: New Insights from the US Banking Sector," JRFM, MDPI, vol. 14(4), pages 1-13, March.
    5. Huang, Xian & Xiong, Qiyue, 2015. "Bank capital buffer decisions under macroeconomic fluctuations: Evidence for the banking industry of China," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 30-39.
    6. Cao, Yifei & Whyte, Kemar, 2022. "Corporate Tax Shields and Capital Structure: Levelling the Playing Field in Debt vs Equity Finance," National Institute of Economic and Social Research (NIESR) Discussion Papers 542, National Institute of Economic and Social Research.
    7. Jiang, Hai & Zhang, Jinyi & Sun, Chen, 2020. "How does capital buffer affect bank risk-taking? New evidence from China using quantile regression," China Economic Review, Elsevier, vol. 60(C).
    8. Saadaoui Zied, 2015. "The Cyclical Behaviour of Bank Capital Buffers: An Empirical Evidence for MENA Banking Systems," Review of Middle East Economics and Finance, De Gruyter, vol. 11(2), pages 145-182, August.
    9. Pak, Olga & Kretzschmar, Gavin Lee, 2016. "Western sanctions—Only half the challenge to Russia’s economic union," Research in International Business and Finance, Elsevier, vol. 38(C), pages 577-592.
    10. Daher, Hassan & Masih, Mansur & Ibrahim, Mansor, 2015. "The unique risk exposures of Islamic banks’ capital buffers: A dynamic panel data analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 36-52.
    11. Barbieri, Claudio & Couaillier, Cyril & Perales, Cristian & Rodriguez d’Acri, Costanza, 2022. "Informing macroprudential policy choices using credit supply and demand decompositions," Working Paper Series 2702, European Central Bank.
    12. Khurram Iftikhar & Syed Faizan Iftikhar, 2018. "The impact of business cycle on capital buffer during the period of Basel-II and Basel-III: Evidence from the Pakistani banks," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-20, December.
    13. Giulio Velliscig & Josanco Floreani & Maurizio Polato, 2023. "Capital and asset quality implications for bank resilience and performance in the light of NPLs’ regulation: a focus on the Texas ratio," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(1), pages 66-88, March.
    14. Hans Degryse & Sanja Jakovljević & Steven Ongena, 2015. "A Review of Empirical Research on the Design and Impact of Regulation in the Banking Sector," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 423-443, December.
    15. Daher, Hassan & Masih, A.Mansur M. & Ibrahim, Mansor H., 2014. "Islamic Banks’ Capital Buffers: Unique Risk Exposures and the Disciplining Effects of Charter Values," MPRA Paper 56947, University Library of Munich, Germany.

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    More about this item

    Keywords

    Bank capital regulation; Pro-cyclicality; Capital buffers; Business cycle; Basel III;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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