Counter-indemnity and Procyclicality: Difference between pages

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imported>Doug Williamson
(Note sometimes known as 'indemnity'.)
 
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A counter-indemnity is an obligation to make a reimbursement in relation to a primary indemnity, guarantee, bond or any similar arrangment.
1.  ''Bank supervision - capital adequacy - leverage.''


The tendency of financial systems to amplify fluctuations in the economic cycle.


For example, we may be a corporate supplier in a commercial contract.


As part of the contractual arrangements, our bank may issue a performance bond to our customer.
:<span style="color:#4B0082">'''''Interaction and amplification'''''</span>


This gives rise to a contingent liability for our bank.
:"Herd behaviour has long been known to be an essential feature of financial markets.  


The bank will require a counter-indemnity from ourselves, in favour of the bank.
:More subtly, individual reactions, by themselves rational, can, by the virtue of their mutual interaction, produce strong amplification effects.


If the performance bond is called, we must indemnify the bank under the counter-indemnity.


:A broader definition of procyclicality would thus encompass three components, which cannot easily be distinguished in real life:


A counter-indemnity is sometimes also known more simply as an 'indemnity'.
::(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 ==
== See also ==
* [[Bond]]
* [[Bank]]
* [[Contingent liabilities]]
* [[Bank supervision]]
* [[Guarantee]]
* [[Basel III]]
* [[Indemnity]]
* [[Buffer]]
* [[Indemnity clause]]
* [[Capital]]
* [[Multilateral netting]]
* [[Capital adequacy]]
* [[Performance bond]]
* [[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]]
 
 
==Other resource==
*[https://www.bis.org/review/r090805d.pdf Procyclicality - what it means and what could be done - Jean-Pierre Landau, Deputy Governor of the Bank of France, BIS Review 94/2009]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:Financial_products_and_markets]]
[[Category:Identify_and_assess_risks]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Manage_risks]]
[[Category:Risk_reporting]]
[[Category:Risk_frameworks]]
[[Category:The_business_context]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:Financial_products_and_markets]]
[[Category:Identify_and_assess_risks]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Manage_risks]]
[[Category:Risk_reporting]]
[[Category:Risk_frameworks]]
[[Category:The_business_context]]

Revision as of 23:22, 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


Other resource

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