Research Discussion Papers, Bank of Finland
No 17/2006:
The cyclical behaviour of European bank capital buffers
Terhi Jokipii and Alistair Milne ()
Abstract: Using an unbalanced panel of commercial, savings and
co-operative banks for the years 1997 to 2004 we examine the cyclical
behaviour of European bank capital buffers. After controlling for other
potential de-terminants of bank capital, we find that capital buffers of
the banks in the accession countries (RAM) have a significant positive
relationship with the cycle, while for those in the EU15 and the EA and the
combined EU25 the relationship is significantly negative. We additionally
find fairly slow speeds of ad-justment, with around two-thirds of the
correction towards desired capital buffers taking place each year. We
further distinguish by type and size of bank, and find that capital buffers
of commercial and savings banks, and also of a sub-sample of large banks,
exhibit negative co-movement. Co-operative banks and smaller banks on the
other hand, tend to exhibit positive cyclical co-movement.
Keywords: bank capital; bank regulation; business cycle fluctuations; (follow links to similar papers)
JEL-Codes: G21; G28; (follow links to similar papers)
46 pages, September 27, 2006
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