Embedded derivative and Procyclicality: Difference between pages
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1. ''Bank supervision - capital adequacy - leverage.'' | |||
The tendency of financial systems to amplify fluctuations in the economic cycle. | |||
:<span style="color:#4B0082">'''''Interaction and amplification'''''</span> | |||
:"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 == | == 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]] | |||
==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: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
- 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
