Are Capital Buffers Pro-cyclical?

Abstract

This paper investigates whether the capital that banks hold in excess to that which capital requirements demand them to hold (i.e., buffer, excess, or surplus capital) varies pro-cyclically in Spain. The authors interpret a pro-cyclical variation in surplus capital as a sign that banks build an additional capital cushion during an economic upswing to provide added protection against losses suffered in a downswing. The authors feel that it would be encouraging if banks freely chose to take such measures as it would temper the possible tendency of capital requirements to amplify the effects of the business cycle as in the case of a credit crunch.

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Cite this paper

@inproceedings{Ayuso2002AreCB, title={Are Capital Buffers Pro-cyclical?}, author={Juan Ram{\'o}n Ayuso and Daniel Gil Perez and Jes{\'u}s Saurina}, year={2002} }