How Cyclical is Bank Capital?
40 Pages Posted: 16 Feb 2018
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How Cyclical is Bank Capital?
Date Written: February 9, 2018
Abstract
Using annual data since 1834 and quarterly data since 1959, I find a negative correlation between output and current and lagged values of the bank capital ratio, but a positive correlation with leading values, although except for the period since 1996 the numbers are mostly small and usually insignificant. The most significant correlations tend to reflect movements in bank assets, rather than capital itself, and although the pattern of aggregate correlations matches those of large banks, small banks show a different pattern, with strongly pro-cyclical capital ratios (countercyclical leverage).
Keywords: bank capital, business cycles
JEL Classification: G21, E32, G28, N20
Suggested Citation: Suggested Citation