The cyclical behavior of bank capital buffers in an emerging economy: Size does matter

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 bu¤ers and the business cycle. We follow a partial adjustment framework and control for several variables that have been identi…ed as important determinants of bank capital bu¤ers in previous studies, and …nd that bank capital bu¤ers vary over the business cycle. We are able to identify a negative co-movement of capital bu¤ers and the business cycle. However, we also …nd that capital bu¤ers 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. JEL Classi…cation: C26; G21; G28.

A Note on Bank Capital Buffer, Portfolio Risk and Business Cycle

“…al. 2004;Jokipii and Milne, 2008;Shim 2013), the partial adjustment framework is specified as follows: (Jokipii and Milne, 2008;Stolz and Medow, 2011;Shim, 2012;Garcia-Suaza et. al.…”

“…The studies concerning the cyclical behavior of capital buffer in developing countries' banking sectors, on the other hand, are not many. Garcia-Suaza, et al (2012), found evidence in favor of a negative and significant comovement of capital buffers with the business cycle for Colombian banks. Tabak, et al (2011) As a result of the transition process that the country's financial system and banking sector have gone through in the course of the last decade; state banks were restructured and become more profitable, the private capital participation was encouraged to strength the private banking system, the capital structure of private banks was regulated to limit their market risk.…”

Abnormal loan growth and bank risk-taking in Vietnam: A quantile regression approach

“…Large banks, however, may invest more in risky assets because of the too-big-to-fail effect. Smaller banks may have more flexibility in operating in terms of changing their strategies more quickly as a response to a change in economic condition and have lower fixed operating costs (Amador et al, 2013;García-Suaza et al, 2012).…”

Capital Buffer of Russian Banks and Economic Cycle: Assessment of Influence

“…В работе [García-Suaza et al, 2012] была обнаружена отрицательная связь между буфером капитала и экономическим циклом, однако выявлено, что буферы капитала малых и крупных банков ведут себя по-разному в течение экономического цикла. Буфер капитала, во-первых, постоянен во времени, в то время как, во-вторых, ведет себя контрциклически.…”

“…Наблю даемый в настоящее время рост буфера капитала в периоды экономического спада связан со снижением кредитования в эти периоды и, соответственно, высвобождением капитала. Этот результат соответствует выводам, полученным в исследованиях колумбийской и бразильской экономик [Tabak, Norohna, Cajueiro, 2011;García-Suaza et al, 2012], однако противоположен результатам схожих работ в контексте Канады [Guidara et al, 2013]. Кроме того, необходимо учесть робастность полученной оценки по отношению к изменению подмножества банков, входящих в выборку: действительно, указанная взаимосвязь имеет место для крупных и средних банков.…”