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IMPACT OF BUSINESS CYCLE ON BANK CAPITAL BUFFERS: EVIDENCE FROM INDIA

IMPACT OF BUSINESS CYCLE ON BANK CAPITAL BUFFERS: EVIDENCE FROM INDIA This paper investigates the impact of the business cycle, adjustment costs and other bank specific variables on bank capital buffer in the three types of Indian commercial banks. This study specifies a partial adjustment model and uses the dynamic panel data model and more specifically the Generalized Method of Moments Technique to examine the impact of the business cycle, adjustment costs and other bank specific variables for the determination of bank capital buffer. We find a robustly significant negative relationship between the business cycle and capital buffer for all the three types of commercial banks in India. The capital buffers of foreign banks react more strongly to the business cycle than the other banks. Adjustment costs have the greater impact on the bank capital buffer. JEL codes: G24, O16, E5 Keywords: adjustment costs, bank capital buffer, business cycle, output gap http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

IMPACT OF BUSINESS CYCLE ON BANK CAPITAL BUFFERS: EVIDENCE FROM INDIA

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the impact of the business cycle, adjustment costs and other bank specific variables on bank capital buffer in the three types of Indian commercial banks. This study specifies a partial adjustment model and uses the dynamic panel data model and more specifically the Generalized Method of Moments Technique to examine the impact of the business cycle, adjustment costs and other bank specific variables for the determination of bank capital buffer. We find a robustly significant negative relationship between the business cycle and capital buffer for all the three types of commercial banks in India. The capital buffers of foreign banks react more strongly to the business cycle than the other banks. Adjustment costs have the greater impact on the bank capital buffer. JEL codes: G24, O16, E5 Keywords: adjustment costs, bank capital buffer, business cycle, output gap

Journal

Economics, Management, and Financial MarketsAddleton Academic Publishers

Published: Jan 1, 2013

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