Regulators struggle to tackle pro-cyclicality

Mitigating pro-cyclicality in the regulatory capital framework was one of the principal objectives of Basel III, but serious concerns surround the counter-cyclical capital buffer proposal, while efforts to dampen cyclicality in minimum requirements appear to have stalled. How much progress have regulators actually made? Joel Clark reports

Of the various components that make up the Basel III reform package, few have been more complex or challenging than efforts to mitigate pro-cyclicality. With the reforms due to be finalised by the end of the year, few regulators or bankers have the confidence to assert that the approach adopted by the Basel Committee on Banking Supervision will genuinely succeed in reducing the cyclicality of the framework.

The stakes couldn't be much higher. In the wake of the crisis, pro-cyclicality was