Procyclical: Difference between revisions
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This is a problem, because it can amplify financial instability. | This is a problem, because it can amplify financial instability. | ||
Basel III seeks to address the problem of the procyclicality of banks' capital, by requiring them to hold countercyclical buffers. | Basel III seeks to address the problem of the procyclicality of the largest banks' capital, by requiring them to hold countercyclical capital buffers. | ||
Revision as of 21:58, 30 October 2016
In business cycle theory and finance, any economic quantity that is positively correlated with the overall state of the economy.
Any quantity that tends to increase when the overall economy is growing.
Bank supervision
The performance of banks tends to be procyclical. They thrive when the economy is strong, and suffer disproportionately when the general economy is weak.
This is a problem, because it can amplify financial instability.
Basel III seeks to address the problem of the procyclicality of the largest banks' capital, by requiring them to hold countercyclical capital buffers.
Countercyclical is the opposite of procyclical.
