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Procyclicality of financial systems: is there a need to modify current accounting and regulatory rules?

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  • Rochet, J C.

Abstract

Financial systems have an intrinsic tendency to exacerbate business cycle fluctuations rather than smoothing them out. The current crisis is a perfect illustration of this. Some commentators have argued that the recent reforms to international bank regulation (Basel II) and accounting rules (IAS 39) are likely to increase this intrinsic procyclicality in the future. This article examines whether this accusation is founded and what policy decisions could be envisaged to alleviate this undesirable feature of financial systems.

Suggested Citation

  • Rochet, J C., 2008. "Procyclicality of financial systems: is there a need to modify current accounting and regulatory rules?," Financial Stability Review, Banque de France, issue 12, pages 95-99, October.
  • Handle: RePEc:bfr:fisrev:2008:12:10
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    Cited by:

    1. Agénor, Pierre-Richard & Pereira da Silva, Luiz A., 2012. "Cyclical effects of bank capital requirements with imperfect credit markets," Journal of Financial Stability, Elsevier, vol. 8(1), pages 43-56.
    2. Ines Drumond & José Jorge, 2009. "Basel II Capital Requirements, Firms' Heterogeneity, and the Business Cycle," FEP Working Papers 307, Universidade do Porto, Faculdade de Economia do Porto.
    3. Claessens, Stijn, 2017. "Regulation and structural change in financial systems," CEPR Discussion Papers 11822, C.E.P.R. Discussion Papers.
    4. Correia, Filipa & Manuelito, Sandra & Jiménez, Luis Felipe, 2009. "Financial regulation and oversight: lessons from the crisis for latin America and the Caribbean," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    5. Frédérique Bec & Christian Gollier, 2009. "Term Structure and Cyclicity of Value-at-Risk: Consequences for the Solvency Capital Requirement," CESifo Working Paper Series 2596, CESifo Group Munich.

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