A study of the correlation between countercyclical capital buffer and economic cycles: evidence for Russia

Abstract

This paper analyzes the relationship between the economic cycles and capital buffer in case of Russia. Also we determine how bank size and ownership influence on such relationship. The negative correlation between countercyclical capital buffer and GDP growth is considered as the main result of the preformed analysis. Thus, the constructed model shows that the activity of the banking system in Russia is procyclical. So the implementation of countercyclical capital buffer will have the positive effect on financial system and smooth cyclicity. We establish that capital buffer of big banks, state-owned and foreign banks moves in one direction as a whole sample, whereas capital buffer of small banks moves in the opposite direction.