Financial Statistics for the United States and the Crisis: What did They get Right, What did They Miss, and how Should They Change?

47 Pages Posted: 12 Mar 2011

See all articles by Matthew J. Eichner

Matthew J. Eichner

Board of Governors of the Federal Reserve System

Donald L. Kohn

Board of Governors of the Federal Reserve

Michael Palumbo

Board of Governors of the Federal Reserve System

Date Written: April , 2010

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.

Keywords: Financial Statistics, Financial Stability Analysis, Financial Crisis

Suggested Citation

Eichner, Matthew J. and Kohn, Donald L. and Palumbo, Michael G., Financial Statistics for the United States and the Crisis: What did They get Right, What did They Miss, and how Should They Change? (April , 2010). FEDS Working Paper No. 20, Available at SSRN: https://ssrn.com/abstract=1783655 or http://dx.doi.org/10.2139/ssrn.1783655

Matthew J. Eichner (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Donald L. Kohn

Board of Governors of the Federal Reserve ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Michael G. Palumbo

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2296 (Phone)

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