PROCYCLICALITY OF THE BANKING SYSTEM: THE PRUDENTIAL AND ACCOUNTING FRAMEWORK OF THE PROCYCLICALITY OF BANK BALANCE SHEET

This article discusses the debate on the pro-cyclicality of finance and the movement of capital and credit which results from it. It describes the relationship between regulation and stability of the financial system and shows the potential impact of regulation on the behaviour of lending and the succession of financial crisis. More fundamentally, it would be subject to analyze the dynamics of capital under the new Basel II accord and observe its pro-cyclical effects through various types of instruments. However, it cannot be ignored that monetary policy is at the heart of discussions on measures to promote price stability in the economy. We examine the transmission mechanisms of monetary policy on the economy and its impact on the behaviour of capital and credit. We study the subsequent implementation rules for accounting standards associated to bank balance sheet and subsequently their cyclical effects. Furthermore, we examine the consequences of accounting standards on the supply of credit and capital. Finally, possible measurements and solutions are formulated to limit the effects of dynamic behaviour of credit and bank capital