Financial sector pro-cyclicality: lessons from the crisis

Fabio Panetta (), Paolo Angelini (), Ugo Albertazzi (), Francesco Columba (), Wanda Cornacchia, Antonio Di Cesare (), Andrea Pilati (), Carmelo Salleo () and Giovanni Santini ()
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Fabio Panetta: Bank of Italy
Ugo Albertazzi: Bank of Italy
Andrea Pilati: Bank of Italy
Carmelo Salleo: Bank of Italy
Giovanni Santini: Bank of Italy

No 44, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research Department

Abstract: 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.

Keywords: pro-cyclicality; financial accelerator; capital requirements; leverage; accounting standards; incentives (search for similar items in EconPapers)
JEL-codes: E5 G1 G2 G3 M4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc
Date: 2009-04
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Persistent link: http://EconPapers.repec.org/RePEc:bdi:opques:qef_44_09

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