Pro-cyclicality refers to the dynamic positive feedback mechanism formed by the financial system and the real economy in the time dimension, which amplifies the boom and bust cycles, intensifies the cyclical fluctuations of the economy, and leads to or enhances the instability of the financial system.

Regulatory arbitrage means that financial institutions reduce regulatory capital requirements through financial transactions without reducing the business scale and overall risk of financial institutions. Because regulatory capital is often regarded as regulatory tax, which is the cost and burden of financial institutions, financial institutions have the incentive to engage in regulatory arbitrage. Loan sales and asset securitization transactions in modern credit portfolio management have usually become common tools for financial institutions to engage in regulatory arbitrage.