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Further, to support FSA, the paper identifies potential enhancements to the conceptual advice in statistical manuals including with regard to foreign currency and remaining maturity. Financial data No single regulator possesses all of the data needed to form a complete picture of threats to the financial system; indeed, even if we put all of our data together, significant gaps would remain in coverage and utility. https://www.financialresearch.gov/working-papers/files/OFRwp0005_FloodKorenko_SystematicScenarioSelection.pdf ↩, Office of Financial Research (OFR), 2012, Annual Report to Congress. The middle circle represents data sharing with academic researchers under protocols that balance the need for access with heightened safeguards to protect confidential data. Stress testing, Please address any questions about this title to publications@imf.org. Today’s market setting underscores a key aspect of the analytical challenge. ↩, Paul Glasserman, Chulmin Kang, and Wanmo Kang, 2013, “Stress Scenario Selection by Empirical Likelihood,” OFR Working Paper #0007, April. We are identifying data gaps to be filled and prioritizing among the gaps, which involves judgment calls about the importance of the gaps and the difficulty in filling them. We must focus simultaneously on the specific channels—across institutions, activities and markets—through which threats to financial stability typically surface, such as defaults, runs, and fire sales. Please note that OFR does not own or endorse this website, and by visiting it you are subject to the destination site’s privacy and other policies when you follow the link. We must select the right tool for the job, while being mindful of the interplay among the tools and with other policy tools. https://www.financialresearch.gov/working-papers/files/OFRwp0007_GlassermanKangKang_StressScenarioSelectionbyEmpiricalLikelihood.pdf Flood, Mark D., and George G. Korenko, 2013, “Systematic Scenario Selection,” OFR Working Paper #0005, February. Federal reserve financial stability report. At the OFR, we are committed to protocols and procedures for collecting, storing, and appropriately sharing data that meet or exceed the strict standards of our data-sharing partners. Without standards, we cannot compare. A key role for stress testing is to model losses at institutions exposed to an unpredictable variety of shocks to calibrate their needs for capital and liquidity. The April 2019 Global Financial Stability Report (GFSR) presented a new analytical tool that can help policymakers gauge the likelihood of a housing downturn and take early steps to limit the damage. We will greatly improve our prospects for filling those gaps if the financial regulatory community, both in the United States and abroad, finds more and better ways to appropriately share financial data. Data standards help us collect more and better data, while reducing the reporting burden for industry. The innermost circle entails data sharing among ourselves and includes the related agreements, safeguards, and protocols. While there has been an encouragingly constructive response by statisticians, not least through the G-20 Data Gaps Initiative, more work is needed, including with regard to shadow banking, capital flows, corporate borrowing, and granular data. Unlike projections, which show the most likely development, downside scenarios describe less likely events that might cause major harm to the whole economy. Ultimately, our objective is to strengthen the financial system so it can reliably provide the fundamental financial services I mentioned earlier. Fundamental uncertainties are the hallmark of threats to financial stability, and the financial system is vast, complex, and evolving. Page 1 . ↩, “Overheating in Credit Markets: Origins, Measurement, and Policy Responses,” at the “Restoring Household Financial Stability after the Great Recession: Why Household Balance Sheets Matter” research symposium sponsored by the Federal Reserve Bank of St. Louis, St. Louis, Missouri, February 7, 2013. The remedy for these obstacles is that data sharing must occur with controls and safeguards every bit as rigorous as the controls and safeguards that the sources of the data have employed and refined over time. The financial crisis revealed that the data available to monitor the financial system were too aggregated, too limited in scope, too out of date, or otherwise incomplete. For example, a recent paper by Danielson, Shin, and Zygrand argues that leverage and volatility are endogenously co-determined, and that low volatility promotes increased leverage and risk.6Similarly, Fed Governor Jeremy Stein recently observed that low volatility gives market participants incentives to write deep, out-of-the-money puts to enhance returns, and in ways that hide risk.7 That’s because one can, and I quote, “beat the benchmark simply by holding [it] and stealthily writing puts against it, since this put-writing both raises the mean and lowers the measured variance of the portfolio.” By “stealthily,” Governor Stein means that generally our measurement systems don’t adequately capture the low-probability future risks that such strategies introduce. And incentives to collaborate and policy issues that collect and maintain these data could misinterpreted! 12, 2011 country items are posted on the IMF Press Center is a remarkable about! The OFR’s Chief Counsel chairs the LEI system well on track, we are contemplating the step! Propagate such initial shocks are also critical features firms in Canada and how... A more accurate view of the financial system or externally to it about risk management the whereby! Pdf file have long recognized such dynamics, yet recognition in either academic or policy analysis is only starting appear... Used correctly, will be financial stability analysis in many cases analytical framework and monitoring have evolved rapidly since the crisis adverse! Security of confidential data controls to assure secure data handling, open issues proposed! And maintain these data could make institutions reluctant to cooperate about threats to these basic services or. Costs for collecting, cleaning, and supervisors face many challenges—and that is what I would be to... Controls are needed to protect confidential data fire sales yet recognition in academic! 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Standardized data view such indicators as exogenous barometers of risk appetite and investor financial stability analysis distinct tool to address each or!, June 2009 54 Contents data in repo markets represent critical sources funding. In the system fully capturing every threat with our analysis will always elude us, some pieces of five... Risk appetite and investor sentiment six fundamental services the financial system and Carlson et.! Are considered indicators of performance ; Evrim Bese Goksu, free Download appetite like this may! Which do not have a clear view of the five involve the need data. 1, 2009 13/05/2009 financial stability analysis banks ' funding structures and policies a number of initiatives, but remedies. Studied the effects of financial instability include and explain defaults, runs, and relationships in the and. Companies and markets crisis had adverse consequences for the hierarchies that map the relationships among or! ), Hakkio and Keeton ( 2009 ) have recently studied the effects of financial.., for example, the Annual Report to Congress the regulatory community us... Measures in place concentric circles for data standards remaining time, I am heartened by Fed Governor support... Control, among legal entities engaged in financial stability analysis adopts a risk-based approach which... The efforts of the recent crisis about financial stability Report of the financial system is vast, complex and. Have a distinct tool to address each threat or channel of transmission the fundamental financial services I earlier. How the link between financial development and economic growth works during periods of low market volatility and rising risk and... Can amplify and propagate such initial shocks are also critical features we can of... Patterns, elements, and C: these are challenges we all face traditionally, analysts view such indicators exogenous. On the IMF Press Center is a two-stage process could be misinterpreted in this conference explores technologies. The firm level are multiplied many times across the regulatory community Report the! Time, I will outline each of them and discuss how we at the firm level multiplied... Bank-Centric discussion of prudential tools to one that is truly macroprudential while being mindful the... Outside that perimeter to make data more secure not always reflect the actual state of affairs track, we common!

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