This study examines the relationship between capital buffers and business cycle fluctuations. The results show procyclicality in both capital and common equity buffers in banks of 171 countries from 1995 to 2009. Large banks and bank holding companies in developed countries and market-based financial systems have procyclical capital buffers and countercyclical common equity buffers. These banks tend to raise Tier 2 capital to improve their capital ratio. The results of the empirical evidence are consistent with the procyclicality phenomenon that occurred in the 2008 financial crisis, and supports the Basel III requirements for countercyclical capital buffer.
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