This is one of the reasons why I have been arguing against the whole Basel approach to bank regulation. It cannot deal with uncertainty and random shocks. Now, a pro-cyclical feedback loop through ratings will exacerbate the problem. https://twitter.com/aus_business/status/1245551060044746752

The root of the problem is a world view where we chug along some equilibrium trend line with small variations around it. This can be managed with small "buffers". This does not taken into account spirals and feedback loops. This is why the intellectual framework matters.

This is not to throw the baby out with the bathwater. Better capitalized banks is a good thing. Basel also did force risk recognition even if it ignored uncertainty. But a simpler system could have done the same without the rigidities.

One of the lessons of history - rigid solutions to fluid problems always fail when you need it most. The Great Wall will never be able to keep out the hordes.