We examine the cyclical behaviour of European bank capital buffers using an unbalanced panel data set comprising eight years (1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004) of bank balance sheet data for commercial, savings and co-operative banks. Controlling for other potential determinants of bank capital, we find that capital buffers of the banks in the accession countries (RAM10) have a significant positive relationship with the cycle, while for banks operative in the EU15 and the EA and the combined EU25 the relationship is significantly negative. We also find fairly slow speeds of adjustment, with around two-thirds of the correction towards desired capital buffers taking place each year. We further distinguish by type and size of bank, finding 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.

a b s t r a c tBuilding an unbalanced panel of United States (US) bank holding company (BHC) and commercial bank balance-sheet data from 1986 to 2008, we examine the relationship between short-term capital buffer and portfolio risk adjustments. Our estimations indicate that the relationship over the sample period is a positive two-way relationship. Moreover, we show that the management of such adjustments is dependent on the degree of bank capitalization. Further investigation through time-varying analysis reveals a cyclical pattern in the uncovered relationship: negative after the 1991/1992 crisis, and positive before 1991 and after 1997.

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Citation: MILNE, A. and PARBOTEEAH, P., 2016. The business models and economics of peer-to-peer lending. ECRI Research Report No 17, May 2016. Additional Information:• This is a research report. AbstractThis paper reviews peer-to-peer (P2P) lending, its development in the UK and other countries, and assesses the business and economic policy issues surrounding this new form of intermediation. P2P platform technology allows direct matching of borrowers' and lenders' diversification over a large number of borrowers without the loans having to be held on an intermediary balance sheet. P2P lending has developed rapidly in both the US and the UK, but it still represents a small fraction, less than 1%, of the stock of bank lending. In the UK -but not elsewhere -it is an important source of loans for smaller companies. We argue that P2P lending is fundamentally complementary to, and not competitive with, conventional banking. We therefore expect banks to adapt to the emergence of P2P lending, either by cooperating closely with third-party P2P lending platforms or offering their own proprietary platforms. We also argue that the full development of the sector requires much further work addressing the risks and business and regulatory issues in P2P lending, including risk communication, orderly resolution of platform failure, control of liquidity risks and minimisation of fraud, security and operational risks. This will depend on developing reliable business processes, the promotion to the full extent possible of transparency and standardisation and appropriate regulation that serves the needs of customers.Key words: Marketplace lending, financial regulation, credit risk, credit markets, liquidity risk, standardisation, digital economy, banking competition, credit availability, small business lending, consumer credit JEL numbers: G21, G28, L21The European Credit Research Institute (ECRI) is a research institution based in Brussels. Established in 1999 for the study of banking and credit in Europe, ECRI focuses on institutional, economic and legal aspects related to retail finance and credit reporting. The institute provides expert analysis and academic research for a better understanding of the economic and social impact of credit. ECRI supports and funds independent academic research projects. The institute monitors markets and regulatory changes and looks at their impact nationally and internationally.Alistair Milne, Corresponding author. Professor,

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