The Feasibility of Systemic Risk Measurement: Written Testimony for the House Financial Services Committee Hearing on Systemic Risk Regulation

摘要: This document is the written testimony submitted to House Financial Services Committee for its hearing on systemic risk regulation, held October 29, 2009, and not a formal academic research paper, but intended broader audience of policymakers regulators. Academic readers may be alarmed by lack comprehensive citations literature review, imprecise qualitative nature certain arguments, abundance illustrative examples, analogies, metaphors. Accordingly, such are hereby forewarned - this paper research, instead summary policy implications that I have drawn from my interpretation research. focuses three themes: 1. Establishing means measure monitor an ongoing basis single-highest priority financial regulatory reform. In much same way manufacturing companies did consider their impact environment prior pollution we cannot fault institutions ignoring risk-taking in absence regulation. Unless able objectively, quantitatively, regularly, it impossible determine appropriate trade-off between rewards and, social-welfare perspective, how best contain it. 2. Systemic measurement regulation will likely require new legislation compelling systemically important entities provide more transparency confidential regulators, e.g., information regarding assets, liabilities, holdings, leverage, collateral, liquidity, counterparties, aggregate exposures key variables other risks. These requirements less intrusive than position which both impractical unnecessary purposes should already available any entity’s enterprise management system. The infrastructure required collect, clean, analyze, organize, store data secure robust fashion substantial, true worthwhile national-level data-rich undertaking as Bureau Economic Analysis, Labor Statistics, National Weather Service. Given complexity importance system real economic growth recessionary events can economy measuring arguably vital our national interest productivity weather patterns. data-collection effort expedited leveraging existing organizations sources including CFTC, DTCC, Federal Reserve, FDIC, FINRA, NFA, OCC, OTS, SEC, credit bureaus credit-rating agencies. 3. Because cuts across multiple bodies do necessarily share objectives constraints, efficient create independent agency patterned after Transportation Safety Board (NTSB), solely devoted measuring, tracking, investigating support competition with all addition managing described above, would also staffed full-time “virtual” teams expert experienced forensic accountants, lawyers, economists, engineers who sift through wreckage every major blow-up, collect “black boxes,” produce publicly reports findings recommendations. Like NTSB, assist regulators establishing regular lines communication media crises unfold manage flow reduce likelihood panic, one main catalysts crisis easier prevent they extinguish once ignited.