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Is a less pro-cyclical financial system an achievable goal?

Goodhart, Charles (2010) Is a less pro-cyclical financial system an achievable goal? National Institute Economic Review, 211 (1). pp. 81-90. ISSN 0027-9501

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Identification Number: 10.1177/0027950110364100


Banking and finance are inherently pro-cyclical, a condition exacerbated by a combination of Basel II and mark-to-market accounting. But these latter measures have many advantages, so the need is to devise other counter-cyclical macroprudential policies. This fragility was further enhanced by a decline in bank liquidity (reliance on wholesale funding) and a shift in govenance from partnerships to limited liability public companies. Some commentators have seen the solution to such pro-cyclicality in the guise of direct constraints on bank activity, such as the promotion of 'narrow banking' or limits on bank size. While there are arguments for toughening regulation as systemic risk increases, direct constraints are simplistic; more sensible ideas involve the adoption of better designed macro-prudential regulation, perhaps with some version of banking self-insurance. Quite what the future holds for bank regulation remains, however, to be decided.

Item Type: Article
Official URL:
Additional Information: © 2010 SAGE
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Date Deposited: 10 Apr 2011 12:15
Last Modified: 14 Feb 2024 19:57

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