Our accounting and prudential regimes have increased procyclicality in recent years. This is detrimental to a stable flow of credit to the economy. In a mark-to-market environment, asset price increases quickly translate into a larger capital base of financial institutions, which, in turn, trigger additional demand for assets and a further increase in their prices. A spiral is launched. Actually this is a kind of “inverted demand curve” where demand increases with prices and vice-versa, possibly creating the conditions for deep and lasting financial instability. Addressing procyclicality caused by the regulation itself is therefore a priority. The first line of defense against procyclicality should be the accounting framework. I strongly support the current focus on changing the accounting rules. Reducing the scope of the markto-market approach and moving from an incurred loss model to a forward-looking model is essential. The ultimate objective of ongoing negotiations is to create synergies between prudential and accounting standards. Some of the procyclicality can also be trimmed through prudential regulation. Efforts to make solvency ratios potentially less procyclical are welcome and should be pursued. In particular, those efforts aimed at imposing a measure of risks “through the cycle” are useful. Other options to reduce some of the procyclicality through prudential standards include a fixed buffer or a countercyclical capital buffer. I see clear limitations to the former and challenges for the latter. In any case, such mechanisms may not necessarily be cumulative and we may have to choose. How can we address systemic risk?

Joshua Rosenberg: Thrive in any environment - strengthening resilience through risk management Remarks by Mr Joshua Rosenberg, Executive Vice President and Chief Risk Officer of the Federal Reserve Bank of New York, at the GARP Global Risk Forum, Federal Reserve Bank of New York, New York City, 7 November 2019. * * * As prepared for delivery Good morning and thank you for the opportunity to speak to you today. Let me begin by saying that the views I express are my own and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System. The ability to thrive in any environment, in both normal and chaotic conditions, is an organizational imperative. We can strengthen organizational resilience—“the ability to prepare and plan for, absorb, recover from, and more successfully adapt to adverse events”—through risk management.1 That’s because the tools of risk management help us make plans and take action today in the face of an uncertain tomorrow. In fact, we can deliver even more value to our organizations by defining resilience as a goal of risk management. Today, I will talk about some of the challenges to achieving resilience and how risk management can be part of the solution. While there are many aspects of resilience, I’m going to choose two challenges and their connection to risk management: organizational silos and the complexity of control. Organizational Silos The first challenge is organizational silos.2 Threats do not respect organizational boundaries. Some, like cyber threats, actually exploit them.