What Is "Procyclicality" in Margin Requirements? ⎊ Path

What Is “Procyclicality” in Margin Requirements?

Procyclicality is the tendency for margin requirements to increase during periods of market stress (high volatility, falling prices) and decrease during stable periods. This exacerbates market movements: rising margin calls during a crisis force firms to sell assets, driving prices down further, which in turn triggers more margin calls.

Regulators aim to dampen this effect.

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Glossar

Procyclicality

Dynamic ⎊ The procyclical dynamic is driven by risk models that rely heavily on recent historical volatility data to set margin levels.