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Procyclicality and financial regulation - Oxera

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oxera logoAgenda, June 2009 from Oxera

Current micro-prudential regulation, notably the Basel Accords on capital adequacy, has focused on the individual bank. While necessary, this has led, along with the introduction of ‘mark-to-market’ accounting, to a procyclical regulatory bias, instrumental in aggravating the current financial crisis. Professor Charles Goodhart outlines how the cyclical effects of financial operations might be measured, transformed into a counter-cyclical set of instruments, and applied to financial institutions as part of the macro-prudential supervisory framework.

Link to the Oxera web page and the Goodhart paper

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