FSF urges new approach to tackling pro-cyclicality

Regulators should address the pro-cyclical effects of market-sensitive valuation practices and increasing leverage, according to the Financial Stability Forum.

Financial regulators have widely accepted that reform of Basel II capital adequacy rules needs to address pro-cyclicality, but the FSF identifies valuation and leverage as another source of pro-cyclicality to be tackled.

"The pro-cyclical effects arising from the interplay between leverage and valuation needs to be addressed from a macro

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