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Assessing the Cyclical Behaviour of Bank Capital Buyers in a Finance-Augmented Macro-Economy

Author

Listed:
  • Alberto Montagnoli

    (Department of Economics, University of Sheffield)

  • Konstantinos Mouratidis

    (Department of Economics, University of Sheffield)

  • Kemar Whyte

    (Department of Economics, University of Sheffield)

Abstract
This paper empirically analyses how the capital buffer held by banks behave over the business cycle after financial factors have been accounted for. Using a large panel of banks for the period 2000-2014, we document evidence that capital buffers behave more pro-cyclical than previously found in the literature. Furthermore, we also show that this relationship is more pronounced for large commercial banks where access to capital equity markets and external support (bail-out) is likely to constitute a strong incentive to increase credit exposure and lower capital reserves accordingly. Overall, these results have important implications for the development of macroprudential policy tools for the global financial system.

Suggested Citation

  • Alberto Montagnoli & Konstantinos Mouratidis & Kemar Whyte, 2018. "Assessing the Cyclical Behaviour of Bank Capital Buyers in a Finance-Augmented Macro-Economy," Working Papers 2018003, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2018003
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2018003
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    More about this item

    Keywords

    Pro-cyclicality; Capital Buyers; Business Cycle; Financial Cycle; Macropru-dential Policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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