Abstract
With the new regulatory framework, known as Basel III, policymakers introduced a countercyclical capital buffer. Due to its recent introduction, empirical research on its effects is limited. We analyze a unique policy experiment to evaluate the effects of buffer release. In 2006, the Slovenian central bank introduced a temporary deduction item in the capital calculation, creating an average capital buffer of 0.8 percent of risk-weighted assets. It was released at the start of the financial crisis in 2008 and is akin to a release of a countercyclical capital buffer. We estimate its impact on bank behavior. After its release, firms borrowing from banks holding 1 pp higher capital buffer received 11 pp more in credit. Also, we find the impact was greater for healthy firms, and it increased loan loss provisioning for firms in default.
Authors
- Vasja Sivec
- Matjaž Volk
JEL codes
- G01
- G21
- G28