Another form of risk can be described as cyclical and includes, for example, elevated asset prices and excessive credit growth that arise in robust economic times but can leave the balance sheets of both large and small financial firms vulnerable to downturns in the credit cycle.
Attentiveness to these various channels is critical in the monitoring of systemic risk and the formulation of appropriate macroprudential policy responses. In particular, some risks are best allayed by policies that are structural in nature and thus do not change as economic conditions evolve, whereas others are best addressed by policies that are sensitive to economic developments.