A variable response to pro-cyclicality
Ensuring banks put in place counter-cyclical capital buffers has become a key area of focus for regulators across the globe, with some proposing capital buffers be based on financial or macro variables. Alessandro Conciarelli and Mario Quagliariello discuss the pros and cons of some of these proposals
Basel II has been criticised by many observers in the past for being pro-cyclical, but the financial crisis has made this issue a key concern for regulators. In response, bodies such as the Basel Committee on Banking Supervision are considering the introduction of counter-cyclical tools. Various proposals have been put forward, with some based on fixed (time invariant) target capital ratios, and others focusing on time-varying targets linked to either bank-specific variables or to macro and
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