The role of valuation and leverage in procyclicality

This report has been prepared by a joint Working Group of the Financial Stability Forum (FSF) and the Committee on the Global Financial System (CGFS). The Working Group was chaired by Jean-Pierre Landau of the Bank of France. The report is part of the effort of the FSF to examine forces that contribute to procyclicality in the financial system and to recommend policy options to mitigate them. Recommendations drawn from the policy options discussed in this report are presented in the FSF’s April 2009 report entitled Addressing procyclicality in the financial system.