Optimal capital structure and Procyclicality: Difference between pages
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imported>Doug Williamson (Spacing) |
imported>Doug Williamson (Create page. Sources: linked pages and BIS Review 94/2009) |
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''Bank supervision - capital adequacy - leverage.'' | |||
The | 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.'' | |||
== See also == | == See also == | ||
* [[Capital | * [[Capital adequacy]] | ||
* [[ | * [[Countercyclical]] | ||
* [[ | * [[Cyclical]] | ||
* [[Herd behaviour]] | |||
* [[Leverage]] | |||
* [[Procyclical]] | |||
* [[Prudential]] | |||
* [[Total Loss Absorbing Capacity]] | |||
[[Category:Accounting,_tax_and_regulation]] | |||
[[Category:The_business_context]] | |||
[[Category:Investment]] | |||
[[Category:Long_term_funding]] | |||
[[Category:Identify_and_assess_risks]] | |||
[[Category:Manage_risks]] | |||
[[Category:Risk_frameworks]] | |||
[[Category:Risk_reporting]] | |||
[[Category:Financial_products_and_markets]] | |||
Revision as of 00:13, 4 March 2021
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.
