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Financial statistics for the United States and the crisis: what did they get right, what did they miss, and how should they change?

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  • Matthew J. Eichner
  • Donald L. Kohn
  • Michael G. Palumbo
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    Abstract

    Although the instruments and transactions most closely associated with the financial crisis of 2008 and 2009 were novel, the underlying themes that played out in the crisis were familiar from previous episodes: Competitive dynamics resulted in excessive leverage and risk-taking by large, interconnected firms, in heavy reliance on short-term sources of funding to finance long-term and ultimately terribly illiquid positions, and in common exposures being shared by many major financial institutions. Understandably, in the wake of the crisis, financial supervisors and policymakers want to obtain better and earlier indications regarding these critical, and apparently recurring, core vulnerabilities in the financial system. Indeed, gaps in data and analysis, in a sense, defined the shadows in which the "shadow banking system" associated with the buildup in financial risks grew. We agree that more comprehensive real-time data is necessary, but we also emphasize that collecting more data is only part of the process of developing early warning systems. More fundamental, in our view, is the need to use data in a different way--in a way that integrates the ongoing analysis of macro data to identify areas of interest with the development of highly specialized information to illuminate those areas, including the relevant instruments and transactional forms. In this paper, we describe why we are concerned that specifying this second stage generically and prior to processing the first-stage signals will not be fruitful: We can easily imagine specifying ex ante a program of data collection that would look for vulnerabilities in the wrong place, particularly if the actual act of looking by macro- or microprudential supervisors causes the locus of activity to shift into a new shadow somewhere else--something we argue occurred during the buildup of risks ahead of this crisis.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2010-20.

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    Date of creation: 2010
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    Handle: RePEc:fip:fedgfe:2010-20

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    Related research

    Keywords: Finance ; Global financial crisis ; Statistics;

    This paper has been announced in the following NEP Reports:

    References

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    1. Viral V. Acharya & Philipp Schnabl & Gustavo Suarez, 2010. "Securitization without risk transfer," NBER Working Papers 15730, National Bureau of Economic Research, Inc.
    2. Albert M. Teplin & Charles Ian Mead & Brent R. Moulton & Rochelle Antoniewicz & Susan Hume McIntosh & Michael G. Palumbo & Genevieve Solomon, 2005. "Integrated Macroeconomic Accounts for the United States: Draft SNA-USA," BEA Papers 0051, Bureau of Economic Analysis.
    3. Michael G. Palumbo & Jonathan A. Parker, 2009. "The Integrated Financial and Real System of National Accounts for the United States: Does It Presage the Financial Crisis?," NBER Working Papers 14663, National Bureau of Economic Research, Inc.
    4. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
    5. Peter Hördahl & Michael R King, 2008. "Developments in repo markets during the financial turmoil," BIS Quarterly Review, Bank for International Settlements, December.
    6. Christopher Mayer & Karen Pence & Shane M. Sherlund, 2009. "The Rise in Mortgage Defaults," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 27-50, Winter.
    7. Markus K. Brunnermeier, 2008. "Deciphering the Liquidity and Credit Crunch 2007-08," NBER Working Papers 14612, National Bureau of Economic Research, Inc.
    8. Karen E. Dynan, 2009. "Changing Household Financial Opportunities and Economic Security," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 49-68, Fall.
    9. Kevin B. Moore & Michael G. Palumbo, 2010. "The finances of American households in the past three recessions: evidence from the Survey of Consumer Finances," Finance and Economics Discussion Series 2010-06, Board of Governors of the Federal Reserve System (U.S.).
    10. Karen E. Dynan & Donald L. Kohn, 2007. "The rise in U.S. household indebtedness: causes and consequences," Finance and Economics Discussion Series 2007-37, Board of Governors of the Federal Reserve System (U.S.).
    11. Albert M. Teplin & Rochelle Antoniewicz, 2006. "Integrated Macroeconomic Accounts for the United States: Draft SNA-USA," NBER Chapters, in: A New Architecture for the U.S. National Accounts, pages 471-540 National Bureau of Economic Research, Inc.
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