Are capital buffers pro-cyclical?

Ayuso, Juan Francisco Rodríguez; Pérez, Daniel; Saurina, Jesùs

doi:10.1016/s1042-9573(03)00044-5

Cited by 294 publications

(65 citation statements)

References 21 publications

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“…However, there is not a consensus on findings. Ayuso et al (2004) report a negative effect of business cycle on the capital buffers of Spanish Banks. Likewise, Stolz andWedow (2005, 2011) find strong evidence that capital buffers behave countercyclically.…”

Section: Introductionmentioning

confidence: 99%

“…Goddard, Molyneux and Wilson (2004) find a positive relation between the capital-to-asset ratio and profitability for the European banks. The introduction of risk-based capital standards is an attempt to eliminate the potentially negative effects of capital requirements as cited by Ayuso, Perez and Saurina (2004). Besides, the Basel Committee considers determining "right" buffer size as an important risk management task for banks and it suggests regular stress testing as denoted by Peura and Jokivuolle (2004).…”

Section: Introductionmentioning

confidence: 99%

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The Determinants of Capital Buffer in the Turkish Banking System

Atici¹,

Gürsoy²

2012

IBR

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The purpose of this study is to analyze the determinants of capital buffer in the Turkish Banking system and to estimate the cyclicality of capital buffer using a panel data of 87 banks covering the period 1988-2009. The data is based on the reports published by the Banks Association of Turkey. Two-step Generalized Method of Moments is implemented by using Arellano-Bond linear dynamic panel-data estimator. The study is focused on: i) economic growth, ii) asset size, iii) return on equity and iv) non-performing loans as the determinants of capital buffer. It is observed that commercial banks, including the banks under the control of Savings Deposit and Insurance Fund, move procyclically, where commercial banks, excluding the banks under Savings Deposit and Insurance Fund, fluctuate countercyclically. This finding is noteworthy since it is parallel to BASEL III, where structuring a countercyclical capital framework is emphasized.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Determinants of Capital Buffer in the Turkish Banking System

Atici¹,

Gürsoy²

2012

IBR

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“…Ayuso was the first person who empirically tested it by analyzing the data from the Spanish commercial and savings banks during 1986-2000, and the result showed that the capital buffer in the Bank of Spain is Pro-cyclical, which was more significant in the upward period of the economic cycle [2]. Because in the upward period, the bank underestimates the risk level, held a lower capital buffer and expanded the scale of loans in the pursuit of profit.…”

Section: Literature Reviewmentioning

confidence: 99%

“…At the same time, it can be seen that the capital buffer of our listed banks is positively correlated with the core capital buffer and the economic cycle. Both the capital buffer and the core capital buffer are counter-cyclical, that is, during the economic upturn, banks to increase capital buffer, in the economic downturn, reduce capital buffer [2]. Bank diversification of income structure generally reduce the level of bank capital buffer.…”

Section: The Relations Of Capital Buffer and Economic Cyclementioning

confidence: 99%

The Impact of Bank Income Diversification on Capital Buffer Periodicity

Wang¹

2017

OJBM

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Based on the panel data of 16 listed banks in China from 2004 to 2014, this paper makes empirical analysis to examine the relationship between bank's capital buffer and macroeconomic fluctuations or income diversification. The results show that the banks' income diversification has negatively correlation with macroeconomic fluctuations. It means the banks' capital buffer behaves in a counter-cyclical way, and different bank ownership structure or capital level also has asymmetric influence in expansion and slack time. What's more, the non-interest income of bank has a significant negative impact on capital buffer and its periodicity. The diversification of bank income structure not only reduces the bank's capital buffer level, but also weakens the counter-cyclical characteristics of capital buffer. At the same time, the diversification of the income structure of the bank with high capital adequacy ratio has no obvious effect on the counter-cyclical characteristics of the capital buffer. Based on the above conclusions, this paper believes that the regulatory authorities in the implementation of the counter-cyclical capital regulation should fully consider the impact of bank income structure and bank capital levels.

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“…The results of studies that examine the link between bank capital buffers and economic growth are mixed. On balance, however, it appears that commercial banks' capital is negatively related to economic growth (Ayuso, Perez and Saurina, 2004;Lindquist, 2004). This is not the case for savings and cooperatives banks, which appear to build capital during periods of economic growth (Stolz and Wedow, 2011).…”

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confidence: 96%

Regulatory Change and Capital Adjustment of US Credit Unions

2015

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We investigate the determinants of US credit union capital-to-assets ratios, before and after the implementation of the current capital adequacy regulatory framework in 2000. Capitalization varies pro-cyclically, and until the financial crisis credit unions classified as adequately capitalized or below followed a faster adjustment path than well capitalized credit unions. This pattern was reversed, however, in the aftermath of the crisis. The introduction of the PCA regulatory regime achieved a reduction in the proportion of credit unions classified as adequately capitalized or below that continued until the onset of the crisis. Since the crisis, the speed of recovery of credit unions in this category following an adverse capitalization shock was sharply reduced. KeywordsCredit unions, Banking, Capital ratios, Pro-cyclical, Prompt Corrective Action, Regulation JEL G21, G18, G28 The authors would like to thank an anonymous referee for extensive comments and suggestions on a previous draft of this paper. We also thank Christine Brown, Santiago Carbo Valverde, Rebel Cole, Bob DeYoung, Kevin Davis, Scott Frame, Michael Goldstein, Jens Hagendorff, Mohammad Kabir Hassan, Michael King, Phil Molyneux, Rob Nijskens, Steven Ongena, Matthew Osborne and Barry Quinn for useful comments and suggestions on a previous draft of this paper. The usual disclaimer applies. Regulatory Change and Capital Adjustment of US Credit Unions IntroductionDuring the 2000s (and especially since the onset of the financial crisis in 2007), the role of capital in minimizing the impact of unforeseen losses on the part of financial institutions has received widespread attention. In this paper we examine the capitalization of US credit unions.Credit unions are non-profit, cooperative financial institutions governed by their membership on a one-member-one-vote basis, with eligibility for membership defined by the credit union's common bond. At the end of 2012, credit unions accounted for approximately 10% of all consumer savings and deposits in the US, servicing over 96 million members drawn from a wide cross-section of society.Unlike other retail financial institutions, credit unions are not permitted to raise capital by issuing new equity. Over time, net worth accumulates through the retention of (tax exempt)earnings that are not distributed to members, in the form of dividends on share accounts, or favourable rates paid on deposit accounts, or subsidized rates charged on loans. 1 This implies capital shortages cannot be rectified quickly, and suggests that the capital adjustment of credit unions may differ from that of commercial banks and non-financial firms.Before 2000 US credit unions were not subject to any formal capital (net worth)requirements. In 1997, the US Treasury recommended that the National Credit Union Association (NCUA), the regulator, introduce specific net worth requirements in the form of 1 The tax exemption affords credit unions a competitive advantage over banks and other mutual financial services providers, and has as...

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Are capital buffers pro-cyclical?

Cited by 294 publications

References 21 publications

The Determinants of Capital Buffer in the Turkish Banking System

The Determinants of Capital Buffer in the Turkish Banking System

The Impact of Bank Income Diversification on Capital Buffer Periodicity

Regulatory Change and Capital Adjustment of US Credit Unions

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