The New Capital Standarts-Basel III: an Empirical Evidence of Application Countercyclical Capital Buffer to Russia

<p style="text-align: justify;">Now in times of the international economic integration, the banking system of a single country has an impact not only on the country in which it operates, but also on other countries. There are many examples of influential banking systems, in particular American, German, Chinese, Swiss, British and some others. The recent global economic crises has identified that the system of control over the banking sector (especially large banking systems) still has weaknesses that require immediate interference by the supervisory authorities. One of the most vulnerable areas of the financial system is the bank&#39;s capital. In order to reduce the probability of problems occurrence in this field in the future, the Basel Committee on Banking Supervision has developed new regulatory requirements for banks - Basel III.</p><p style="text-align: justify;">Russia is one of the countries that have decided to implement the new requirements, in particular a countercyclical capital buffer which should smooth the procyclical effect of the banking sector on the economy in the coming years. There were few attempts to assess the possible impact of this instrument in Russia before. In our study we analyze the relationship between an economic cycle and capital buffers held by banks and evaluate the effect of the bank capital accumulation on the bank lending activity.</p><p style="text-align: justify;">An empirical part of the study contains the construction and econometric analysis of the two models. The first one evaluates sizes of countercyclical capital buffers that banks have accumulated before the introduction of new requirements. We have defined the buffer as the difference between economic capital and regulatory capitals divided by the regulatory capital and identify the link between this index and regressors which influence it: the size of the bank assets, return on equity, non-performing loans ratio, GDP deviation and others. The second model helped to yield information about changing in lending volumes after the introduction of a mandatory requirement to establish the countercyclical capital buffer.</p><p style="text-align: justify;">The research gives a special emphasis to the analysis of the data. The data for our study have been collected from the official websites of the Russian Federation Central Bank, the Federal State Statistics Service and database such as kuap.ru, bankovert.com and worldbank.org on 10 banks.&nbsp; The chronological framework will be limited by the period from 2005 to 2012. In this way we have compiled panel data for econometric analysis.</p><p style="text-align: justify;">Using special econometric software EViews7 we have obtained the following results. Both our models are significant at the 5% level. It means that they have good descriptive ability and minimum error probability. But the most important finding is that the connection between the countercyclical capital buffer and the gross domestic product is negative so the implementation of new requirements in Russia will have the opposite results that the Basel committee did not expect.</p><p style="text-align: justify;">Moreover we have identified that the countercyclical capital buffer does not influence lending activity in our country thus we can stress that the introduction of new requirements will be useless. But if Our Central Regulator tries to modify them according to Russian specificity we assume that the countercyclical capital buffer will provide significant improvement for the Russian banking system.</p><p>&nbsp;</p>