Countercyclical Financial Regulation

The global financial crisis has focused much attention on procyclicality, particularly in the context of a macroprudential framework. This paper reviews a set of prudential measures that can be adopted by national authorities to deal with procyclic...

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Bibliographic Details
Main Author:	Ren, Haocong
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING ACCOUNTING PRINCIPLES ACCOUNTING RULES ACCOUNTING STANDARD ACCOUNTING STANDARDS AMOUNT OF CREDIT ARBITRAGE ASSET PRICE ASSET PRICES AVAILABILITY OF CREDIT BALANCE SHEET BANK FAILURES BANK OF ENGLAND BANK OF KOREA BANK OF SPAIN BANK PROFITS BANKING INSTITUTIONS BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKS BORROWER BUSINESS CYCLE BUSINESS CYCLES CAPACITY CONSTRAINTS CAPITAL ADEQUACY CAPITAL ALLOCATION CAPITAL BASE CAPITAL CONTROL CAPITAL CONTROLS CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MARKET CAPITAL MOVEMENTS CAPITAL PLANNING CAPITAL RATIO CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL STANDARDS CENTRAL BANK COLLATERAL COMMODITIES COMMODITY COMMODITY PRICES CONSOLIDATED SUPERVISION CONSUMER CREDIT CONSUMER PROTECTION CORPORATE GOVERNANCE CREDIBILITY CREDIT ASSESSMENT CREDIT CARD CREDIT CARD DEBT CREDIT EXPANSION CREDIT GROWTH CREDIT INSTITUTIONS CREDIT INTERMEDIATION CREDIT LOSS CREDIT LOSSES CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RISK CREDITOR CREDITOR RIGHTS CREDITORS CREDITWORTHINESS CROSS-BORDER CAPITAL CURRENCY CURRENCY MISMATCHES DEBT DEBT SERVICE DEFAULT RISK DEFAULTS DERIVATIVES DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DOMESTIC BANKS ECONOMIC CONDITIONS ECONOMIC PERFORMANCE EMERGING MARKET EMERGING MARKET ECONOMIES EQUITY CAPITAL EXPOSURES EXTERNAL CREDIT RATINGS FAIR VALUE FINANCIAL ACCOUNTING FINANCIAL ASSET FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DEVELOPMENT FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STATEMENTS FINANCIAL STRESS FINANCIAL SYSTEM FINANCIAL SYSTEM STABILITY FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FISCAL POLICIES FISCAL POLICY FLOW OF CREDIT FOREIGN BANKS HOST COUNTRIES HOST COUNTRY HOUSEHOLD INCOME HOUSING INCOME SMOOTHING INFORMATION ASYMMETRY INFORMATION TECHNOLOGY INSTRUMENT INTANGIBLE INTANGIBLE ASSETS INTANGIBLES INTEREST RATE INTEREST RATES INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL DEBATE INTERNATIONAL FINANCIAL INSTITUTIONS INTERNATIONAL STANDARD LAWS LEGAL FRAMEWORK LETTERS OF CREDIT LIQUIDITY LIQUIDITY MANAGEMENT LOAN LOAN AMOUNT LOAN QUALITY MACROECONOMIC CONDITIONS MACROECONOMIC MANAGEMENT MACROECONOMIC POLICIES MACROECONOMIC POLICY MANDATES MARKET RISK MARKET STRUCTURE MATURITY MIGRATION MINIMUM CAPITAL REQUIREMENT MINIMUM CAPITAL REQUIREMENTS MONETARY AUTHORITIES MONETARY CONTROL MONETARY POLICY MORTGAGE MORTGAGE LOANS MORTGAGES NET OPERATING INCOME NON-PERFORMING LOANS OPEN ECONOMIES POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS PRICE MOVEMENT PRICE STABILITY PRIVATE SECTOR DEVELOPMENT PROBABILITY OF DEFAULT PRUDENTIAL REGULATION PRUDENTIAL REQUIREMENTS RATING AGENCIES REAL INTEREST REAL INTEREST RATES REGULATOR REGULATORS REGULATORY AUTHORITIES REGULATORY CAPITAL REGULATORY ENVIRONMENT REGULATORY FRAMEWORK REGULATORY STRUCTURE REGULATORY TREATMENTS REPO REPO RATE REPOS RESERVE RESERVE BANK RESERVE BANK OF INDIA RESERVE REQUIREMENTS RESERVES RETAINED EARNINGS RISK EXPOSURE RISK MANAGEMENT RISK MANAGEMENT SYSTEMS RISK WEIGHTED ASSETS RISK WEIGHTS SECURITIES SHORT-TERM CAPITAL SMALL BANKS SOCIAL COSTS SOLVENCY STANDARD ASSETS STATISTICAL ANALYSIS SUBSIDIARIES SUBSIDIARY SUPERVISION OF BANKS SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY SUPERVISORY POWER SUPERVISORY POWERS SUPPLY OF CREDIT SYSTEMIC RISK TAX TAX DEDUCTION TAX POLICIES TAX TREATMENTS TIER 1 CAPITAL TRADING TRANSACTION TRANSPARENCY VOLATILITY WRITEOFFS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111004135445 http://hdl.handle.net/10986/3587

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Summary:	The global financial crisis has focused much attention on procyclicality, particularly in the context of a macroprudential framework. This paper reviews a set of prudential measures that can be adopted by national authorities to deal with procyclicality and discusses issues in designing and implementing such measures. For developing countries, in addition to some general considerations on policy design and implementation, a range of issues may warrant special attention. These include the balance between financial stability and financial development objectives, selection and calibration of policy instruments according to national circumstances and taking into account data limitations and capacity constraints as well as other practical challenges, and continued efforts to improve supervisory independence, supervisory powers and analytical capacity and to ensure adequate resources in order to perform the required tasks. Given the limited practical experience with countercyclical prudential measures, developing countries (as well as developed countries) will have to ascend a learning curve and experiment with select instruments while carefully monitoring and evaluating their effectiveness over time before a framework matures.

Countercyclical Financial Regulation

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