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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
Andrea Pilati: Bank of Italy
Giovanni Santini: Bank of Italy

No 44, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

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)
Date: 2009-04
New Economics Papers: this item is included in nep-acc
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