Groundlearn / Glossary / Procyclicality
Procyclicality
A FRM term, defined in plain English with the distinction examiners test.
What it means
The tendency of risk measures and capital requirements to loosen in booms and tighten in busts, amplifying the cycle.
The exam angle
Countercyclical capital buffers exist to offset it. Mark-to-market accounting and point-in-time PDs both contribute.
Where it appears in the syllabus
- Current Issues in Financial MarketsFRM Part II · exam weight 10% · This cycle's readings — AI in finance, climate risk, digital assets, bank stress.
Related terms
- Bank runA self-fulfilling withdrawal of funding from an institution, where the rational individual choice to withdraw first…
- Basel AccordsThe international framework for bank capital and liquidity regulation, issued by the Basel Committee on Banking…
- Central counterpartyAn entity that interposes itself between the two sides of a trade, becoming buyer to the seller and seller to the buyer.
- Economic capitalThe capital a firm judges it needs to absorb unexpected losses at a chosen confidence level, computed internally.
- Leverage ratioCapital divided by total exposure, without risk weighting — a backstop to the risk-weighted requirement.
- Liquidity coverage ratioThe requirement that a bank holds enough high-quality liquid assets to survive a thirty-day stress scenario.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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