In this paper, the effect of business cycle on the capital buffer of Iranian banking system is analyzed. Two models are estimated using Generalized Method of Moments (2001-2009). The results indicate that in the first model, the reserve requirements ratio (as an index of monetary policy), business cycles, the size of banks and non-performing loans have a significant inverse effect on bank capital buffers. But return on equity variable and bank capital buffers in the previous period have a significant positive effect on bank capital buffers. The results of the second model indicate that bank capital buffers and loan growth rate in the previous period and business cycle have a significant positive effect on loan growth rate variable.