Tackling pro-cyclicality in banking regulation

Proposed new bank capital and liquidity rules need to be forged to address the issue of pro-cyclicality. Paul Harrald and Tom Sandall present some regulatory approaches that may help tackle this important issue

Banking regulation exists largely to maintain systemic stability. This is a goal in which it has spectacularly failed in recent years, in particular in the developed economies with the supposedly most sophisticated regulators and supervisory practices.

The debate currently taking place between politicians, supervisors and the financial industry on how to reshape regulation, has come to a general consensus on the need for a number of changes. In particular, widespread agreement now appears to