Studies on the procyclical behaviour of banks

The three papers in this volume investigate the same subject matter, the procyclicality of banking sector behaviour, from three different perspectives. The first paper of the volume focuses on some regulatory aspects of banks’ procyclical behaviour. The second paper deals both with the depth of financial intermediation and banks’ procyclical behaviour, as in the case of catching-up economies the two subjects are interrelated. The third paper describes some regulatory options that may encourage banks to prepare in due time for a deterioration in loan quality due to changes in the economic environment.Pro-cyclicality, Basel Capital Accord, Credit risk, Provisioning, Regulation.

Studies On The Potential Impacts Of The New Basel Capital Accord

In April 2003, the Basel Committee on Banking Supervision published the third consultative paper (CP3) of the new Basel Capital Accord relating to the prudential regulation of banks, which was followed in July 2003 by the EU Commission’s draft directive with the same contents, but slightly different detailed rules (Capital Adequacy Directive, CAD3). During the consultative process both organisations expect comments from the players affected by the new capital regulation, thus from the central banks of each country as well. The significance of the new capital regulation is underlined by the fact that the Basel recommendation will soon be followed by the European Union’s directive (presumably in 2004), the implementation of which will be one of the largest regulative challenges for Hungary. Accordingly, the Magyar Nemzeti Bank pays special attention to preparing the implementation of the Basel II/CAD3 capital accords, laying the groundwork for the adaptation and carrying out the necessary background analyses. Our main objective in the first phase of this rather complex and far-reaching project was – through participation in the legislative process – to analyse the issues important and relevant for the MNB, as well as to assess the potential consequences of implementation in Hungary. During such analyses we focused on the macro-prudential consequences. Accordingly, we carried out a detailed assessment of five topics.Basel Capital Accord, Pro-cyclicality, Credit risk, Market Risk, Regulation, Corporate governance.