Procyclicality: Difference between revisions
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''Bank supervision - capital adequacy - leverage.'' | 1. ''Bank supervision - capital adequacy - leverage.'' | ||
The tendency of financial systems to amplify fluctuations in the economic cycle. | The tendency of financial systems to amplify fluctuations in the economic cycle. | ||
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:''Jean-Pierre Landau, Deputy Governor of the Bank of France, BIS Review 94/2009.'' | :''Jean-Pierre Landau, Deputy Governor of the Bank of France, BIS Review 94/2009.'' | ||
2. ''Bank supervision - capital adequacy - leverage - risk management.'' | |||
The degree to which a particular financial institution is at risk from the effects of procyclical fluctuations, directly or indirectly. | |||
3. ''Risk - risk management.'' | |||
Similar effects in non-financial sectors of the economy, or the degree of risk to which a particular non-financial organisation is exposed to procyclical risks. | |||
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* [[Prudential]] | * [[Prudential]] | ||
* [[Regulator]] | * [[Regulator]] | ||
* [[Risk]] | |||
* [[Risk management]] | |||
* [[Supervision]] | * [[Supervision]] | ||
* [[Total Loss Absorbing Capacity]] (TLAC) | * [[Total Loss Absorbing Capacity]] (TLAC) |
Revision as of 23:20, 21 November 2023
1. Bank supervision - capital adequacy - leverage.
The tendency of financial systems to amplify fluctuations in the economic cycle.
- Interaction and amplification
- "Herd behaviour has long been known to be an essential feature of financial markets.
- More subtly, individual reactions, by themselves rational, can, by the virtue of their mutual interaction, produce strong amplification effects.
- A broader definition of procyclicality would thus encompass three components, which cannot easily be distinguished in real life:
- (1) fluctuations around the trend
- (2) changes in the trend itself and
- (3) possible cumulative deviations from equilibrium value.
- This points to the policy challenges regulators face.
- They have to try and identify when pure cyclical fluctuations morph into something different: either a change in the trend itself or the start of a cumulative process."
- Jean-Pierre Landau, Deputy Governor of the Bank of France, BIS Review 94/2009.
2. Bank supervision - capital adequacy - leverage - risk management.
The degree to which a particular financial institution is at risk from the effects of procyclical fluctuations, directly or indirectly.
3. Risk - risk management.
Similar effects in non-financial sectors of the economy, or the degree of risk to which a particular non-financial organisation is exposed to procyclical risks.
See also
- Bank
- Bank supervision
- Basel III
- Buffer
- Capital
- Capital adequacy
- Capital buffer
- Countercyclical
- Countercyclical buffer
- Cumulative
- Cyclical
- Deviation
- Economy
- Equilibrium
- Herd behaviour
- Leverage
- Procyclical
- Prudential
- Regulator
- Risk
- Risk management
- Supervision
- Total Loss Absorbing Capacity (TLAC)
- Trend