Fed's Gordy criticises Basel II procyclicality adjustment

NEW YORK - The procyclicality ‘smoothing’ adjustment technique likely to form part of the Basel II capital Accord is sub-optimal, according to Michael Gordy, a senior economist in the research and statistics division of the Board of Governors of the Federal Reserve System.

Gordy, speaking in a personal capacity during his keynote address to Risk’s Credit Risk Summit 2002 USA in New York today, said while he favoured smoothing regulatory minimum capital as a means of dealing with the problem of procyclicality, he did not believe altering the advanced risk-based model approach – as currently favoured by the Basel Committee on Banking Supervision, the body overseeing the implementation of Basel II – was the best solution. Procyclicality is a term used to describe