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Financial sector pro-cyclicality: lessons from the crisis

  • Fabio Panetta

    ()

    (Bank of Italy)

  • Paolo Angelini

    ()

    (Bank of Italy)

  • Ugo Albertazzi

    ()

    (Bank of Italy)

  • Francesco Columba

    ()

    (Bank of Italy)

  • Wanda Cornacchia

    ()

    (Bank of Italy)

  • Antonio Di Cesare

    ()

    (Bank of Italy)

  • Andrea Pilati

    ()

    (Bank of Italy)

  • Carmelo Salleo

    ()

    (Bank of Italy)

  • Giovanni Santini

    ()

    (Bank of Italy)

We analyze the main forces affecting financial system pro-cyclicality (the fact that developments in the financial sector can amplify business cycle fluctuations). We first review some major structural developments in financial markets that may influence pro-cyclicality and that have been overlooked in earlier analyses. We then examine three issues that are center stage in the current debate: capital regulation, accounting standards and managers� incentives. After reviewing the institutional set-up and the key mechanisms at work, we critically examine a series of proposals designed to mitigate pro-cyclicality.

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File URL: http://www.bancaditalia.it/pubblicazioni/qef/2009-0044/QEF_44.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 44.

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Date of creation: Apr 2009
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Handle: RePEc:bdi:opques:qef_44_09
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