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The procyclicality ‘smoothing’ adjustment technique likely to form part of the Basel II capital Accord is sub-optimal, according to Michael Gordy, a senior economist in the research and statistics division of the board of governors of the US Federal Reserve System.

Gordy said during his keynote address to Risk’s Credit Risk Summit 2002 USA in New York in October that while he favoured smoothing regulatory minimum capital as a means of dealing with the problem of procyclicality, he did n

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