Additionally, system-wide risks need to be reviewed dynamically as it evolves over time. This is the pro-cyclicality problem, I will touch upon next. Risk exposures which may seem to be reasonable under benign economic and market conditions, may increase dramatically during times of stress. The fluctuation of risks as they change along with macro-economic environment needs to be carefully assessed as well.
See, for example, Martino, R. (2021), “Public investment, convergence and productivity growth in European regions”, Working Paper Series, No 2019/21, Università degli Studi di Firenze; de Jong, J., Ferdinandusse, M., Funda, J. and Vetlov, I.