Abstract
Based on the panel data of 40 Chinese commercial banks from 2004 to 2014, this paper tests empirically the relationship among business cycle, banking market structure and capital buffer using the method of GMM. The results show that in China: capital buffers fluctuate over the business cycles countercyclicality, and market concentration shows a negative relationship with the capital buffers. The decrease of market concentration enforces the countercyclical behavior of capital buffers.
Highlights
The financial crisis of 2008 has done a great damage to the global economy, and the procyclicality of financial system and capital regulation are regarded as the two most important reasons that lead to the financial crisis
With respect to GDP, we find a positive coefficient and it is significant, which indicates that bank capital buffers fluctuate countercyclicality
This paper analyzes the relationship among business cycle, banking market structure and capital buffers by using a dataset of 40 Chinese commercial banks from 2004 to 2014
Summary
The financial crisis of 2008 has done a great damage to the global economy, and the procyclicality of financial system and capital regulation are regarded as the two most important reasons that lead to the financial crisis. Under this background, Basel III was released, which implies more stringent requirements for financial institutions. There is little study on the relationship between market structure and the cyclicality of capital buffer. These years lots of regulation has been implemented in Chinese banking sector and the banking market concentration is decreasing.
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