Abstract: The global financial crisis has triggered scholars’ debates on the cyclicality of bank capital buffer and its economic effect. Bank capital buffer will generate spillover effects on the real economy by affecting credit supply, and the research on its cyclicality has important implications. Using data from 87 commercial banks, this paper tests empirically the cyclical effect of bank capital buffers in China. Our results show that there exists generally no cyclical effect and the implied hypothesis within the traditional test framework might not be valid either in China. However, for state-owned banks, there exists a countercyclical effect. Our conclusions have policy implication for implementing the capital buffer as a countercyclical tool effectively.
Keywords: Capital Buffers, Business Cycle, Bank Credit, Cyclicality
source:Finance & Trade Economics ,No5,2013