Procyclical: Difference between revisions
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In [[business cycle]] theory and finance, any economic quantity that is positively correlated with the overall state of the economy. | In [[business cycle]] theory and finance, any economic quantity that is positively correlated with the overall state of the economy. | ||
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2. | |||
The additional amplification effects resulting from the structure of the financial system. | |||
The performance of banks tends to be procyclical. They thrive when the economy is strong, and suffer disproportionately when the general economy is weak. | The performance of banks tends to be procyclical. They thrive when the economy is strong, and suffer disproportionately when the general economy is weak. | ||
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This is a problem, because it can amplify financial instability. | This is a problem, because it can amplify financial instability. | ||
Basel III | Basel III sought to address the problem of the procyclicality of the largest banks' capital, by requiring them to hold countercyclical capital buffers. | ||
The opposite of procyclical is ''countercyclical''. | |||
== See also == | == See also == | ||
* [[Bank]] | |||
* [[Basel III]] | |||
* [[Buffer]] | |||
* [[Capital]] | |||
* [[Capital buffer]] | |||
* [[Countercyclical]] | * [[Countercyclical]] | ||
* [[Countercyclical buffer]] | |||
* [[Cyclical]] | * [[Cyclical]] | ||
* [[Economy]] | |||
* [[Procyclicality]] | |||
* [[Prudential]] | |||
* [[Supervision]] | |||
* [[Total Loss Absorbing Capacity]] | * [[Total Loss Absorbing Capacity]] | ||
[[Category:Manage_risks]] | |||
[[Category:The_business_context]] | [[Category:The_business_context]] | ||
Latest revision as of 08:48, 1 December 2023
1.
In business cycle theory and finance, any economic quantity that is positively correlated with the overall state of the economy.
Any quantity that tends to increase when the overall economy is growing.
2.
The additional amplification effects resulting from the structure of the financial system.
The performance of banks tends to be procyclical. They thrive when the economy is strong, and suffer disproportionately when the general economy is weak.
This is a problem, because it can amplify financial instability.
Basel III sought to address the problem of the procyclicality of the largest banks' capital, by requiring them to hold countercyclical capital buffers.
The opposite of procyclical is countercyclical.
