BIS Review 168/2010  17  Chart 13 Dispersion of ROE of US banks and US top 20 PNFCs (by market cap)  Source: Thomson Reuters Datastream and Bank calculations. Consistent with Bordo and Helbling (2003, 2010), there is evidence of increasing synchronicity in medium term GDP fluctuations across countries since 1980: a Wilcoxon rank-sum test rejects the null that the two samples are drawn from the same distribution at the 1% level and Jenrich’s test rejects the null that the correlation matrices are equal. 22, 23 This increased synchronisation can be explained by increasing trade and financial liberalisation (see Bordo and Helbling (op. cit.)). We observe an analogous pattern for credit cycles, with the correlation between countries’ credit cycles higher on average after 1980. The Wilcoxon test rejects the null of equality at the 5% level and Jenrich’s rejects its null at the 1% level. This is consistent with the notion that global banks’ activities have become increasingly alike, possibly as a result of increased competition and crossborder lending. The increase in the cross-country correlation of the credit cycle suggests policy needs an international dimension if it is to curb effectively the credit cycle, to which we turn next. 22  Wilcoxon’s test pools the correlation matrices from the two sub samples and ranks individual country-pair observations by magnitude. If one set of observations features systematically higher cross-correlations, the rank of each of the observations will be higher on average in the pooled sample.
Condition 2: State Monotonicity:  is non-decreasing in  . Condition 3: Uniform Limit Dominance: There exist and such that (1) for all and and (2) there exists such that for all . Condition 4: Strict Laplacian State Monotonicity: There exists a unique . solving Condition 5: Finite Expectations of Signals: Condition 6: Continuity: and density . is well defined. is continuous with respect to signal  Morris and Shin use these to show be defined by Condition 4. Then for any Lemma 1: (Morris and Shin 2003) Let there exists such that for all , if strategy s survives iterated deletion of strictly dominated strategies, then = {Tight} for all and = {Risky} for all . Proof: See Morris and Shin (2003), Proposition 2.2. 26  BIS Review 168/2010  i.e. that agents play cut-off strategies, adopting strategy = {Tight} when in receipt of a , and adopting strategy = {Risky} when in receipt of a “high’ “low” signal . Condition 4 gives the threshold. signal  BIS Review 168/2010  27  Annex 2 International medium-term frequency cycles in real GDP and credit  28  BIS Review 168/2010  BIS Review 168/2010  29  30  BIS Review 168/2010  BIS Review 168/2010  31  32  BIS Review 168/2010  References Acharya, V.V. (2009), “A Theory of Systemic Risk and Design of Prudential Bank Regulation”,Journal of Financial Stability, Vol 5, 3, 224–255.