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BIS CCA-004-2011 May 2011 Bank capital buffers, lending growth and economic cycle: empirical evidence for Brazil Paper prepared for the 2nd BIS CCA Conference on “Monetary policy, financial stability and the business cycle” Ottawa, 12–13 May 2011 Authors* : Benjamin Miranda Tabak, Ana Clara Noronha, and Daniel Cajueiro Affiliation: Central Bank of Brazil, Universidade de Brasília and Universidade de Brasília and National Institute of Science and Technology for Complex Systems, respectively Email: benjamin.tabak@bcb.gov.br. * This paper reflects the views of the authors and not necessarily those of the BIS or of central banks participating in the meeting. Bank capital buffers, lending growth and economic cycle: empirical evidence for Brazil Benjamin M. Tabak Ana Clara B. T. F. Noronha Daniel O. Cajueiro Abstract This paper analyzes the relationship between economic cycle and capital buffers held by banks in Brazil. We evaluate the effects of bank capital on bank lending activity and how these effects vary among banks with different ownership structure. We use an unbalanced panel data of Brazilian institu- tions from 2000 to 2010 to estimate an equation for capital buffers and for loans’ growth. Our results reveal that the economic cycle negatively affects the surplus capital. These results have important implications for the dis- cussion of capital regulations and the recent counter-cyclical proposal under Basel III.