Working Paper

How Cyclical Is Bank Capital?

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 (counter-cyclical leverage).

Keywords: Bank capital; business cycles;

JEL Classification: E32; G21; G28; N20;

https://doi.org/10.26509/frbc-wp-201504r1

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2015-03-15

Number: 15-04R

Note: This is a revision of Working Paper 15-04 originally published in March of 2015.