Such adjustments proceed gradually in the beginning. However, triggered by some kind of a shock, a crisis will emerge in the form of funding liquidity shortages and become more severe as confidence among market participants in each other collapses.
This phenomenon that the profit-seeking behavior of financial institutions amplifies the financial and economic cycle is referred to as “procyclicality” and is another important dimension of assessment apart from the aforementioned cross-sectional network perspective. III.