Countercyclical Capital Buffer Announcement, Credit Supply, and Bank Stability

Abstract

This study examines heterogeneous bank-level responses following Korea’s first non-zero countercyclical capital buffer announcement. Using quarterly bank-level data, we assess whether post-announcement changes in household lending and bank stability vary with banks’ pre-announcement financial conditions. Banks with higher pre-announcement non-performing loan ratios exhibit slower household loan growth and higher Z -scores, whereas responses associated with capital cushions are generally insignificant. Small-sample-robust inference provides stronger support for the stability association, while the household-lending association is more sensitive to finite-sample inference and sample composition. The adjustment among banks with higher pre-announcement NPL ratios is more consistent with lower risk-weighted asset intensity than with higher capital-to-assets ratios. Our findings provide evidence of systematic cross-bank heterogeneity following a common macroprudential announcement, with pre-existing asset-quality fragility associated with subsequent lending and balance-sheet adjustments.