Impact of Business Cycles on Capital Buffers in the Iranian Banking System

Banks stand against losses from non-performing loans granted, unfavorable market conditions and some operational bottlenecks. A bank with sufficient capital has more time to investigate problems and correct exposure to them. All banks need to reserve adequate capital to achieve minimum capital ratios. The purpose of this reserve is to ensure that banks maintain a capital reserve. So that they could take this buffer to absorb losses in times of crisis .but the more their regulatory capital ratios close to minimum, their restrictions will be more in profit distribution. Banking structure is a major factor causing economic cycles. Irving Fisher s theory of credit cycles in 1933 is one of the interesting theories about the cause of cycles. Fisher argues that the net increase in credit and equivalent to it debt as a percentage of GDP is caused the economic prosperity, and vice versa, credit reductions drag the economy into crisis and recession. In order to test this hypothesis, two models are estimated In this paper.Both models are estimated using generalized method of moments (GMM). The estimates have been made for the years 2009-2001. Estimation results indicate that in the first model, reserve requirements (as an indicator of monetary policy), indicators of business cycles, the size of banks and non-performing loans have a significant inverse effect on bank capital buffers. But return on equity and bank capital buffers in the previous period have a significant positive effect on bank capital buffers. The result of the second model indicates that bank capital buffers and loan growth rate in the previous period (one lag) and indicator of business cycle have a significant positive effect on loan growth rate.

کلیدواژه ها:

Capital Buffers ، Business Cycles ، Bank Capital ، Generalized Method of Moments