![]() ![]() I am not suggesting that this would solve the problem of financial crisis. There are no absolutes when we deal with what happens under stress but I believe a Cyclical Buffer such as is outlined in this post also has the potential to help mitigate the risk of loss of confidence in the bank when losses are no longer part of what stakeholders expect but have moved into the domain of uncertainty. The value of this Cyclical Buffer proposal ultimately depends on its capacity to enhance the resilience of the capital adequacy regime in the face of economic downturns without compromising its risk sensitivity. The need for greater clarity in the distinction between expected and unexpected loss perhaps less so. The value of improved clarity, coherence and consistency in the risk appetite settings is I think reasonably self evident.
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