Financial Statistics for the United States and the Crisis: What Did They Get Right, What Did They Miss, and How Could They Change?

Matthew J. Eichner, Donald L. Kohn, Michael G. Palumbo

Chapter in NBER book Measuring Wealth and Financial Intermediation and Their Links to the Real Economy (2015), Charles R. Hulten and Marshall B. Reinsdorf, editors (p. 39 - 66)
Conference held November 12-13, 2010
Published in January 2015 by University of Chicago Press
© 2015 by the National Bureau of Economic Research
in NBER Book Series Studies in Income and Wealth

Although the instruments and transactions most closely associated with the recent financial crisis were novel, the underlying themes of the crisis were familiar from previous episodes: Competitive dynamics resulted in excessive leverage and risk-taking by large, interconnected firms, heavy reliance on short-term sources of funding to finance long-term and ultimately illiquid positions, and common exposures being shared by many major financial institutions. After the crisis, financial supervisors and policymakers want better and earlier indications regarding these critical and recurring core vulnerabilities in the financial system. In a sense, gaps in data and analysis defined the shadows in which the "shadow banking system" associated with increasing financial risks grew. We agree more comprehensive real-time data would be valuable, but we emphasize that collecting more data is only part of the development of early warning systems. More fundamental, in our view, is the need to use data differently--integrating the ongoing analysis of macro data with the development of highly specialized information to illuminate areas of interest, including relevant instruments and transactional forms. We explain why specifying this second stage generically and prior to processing the first-stage signals will not be fruitful: a program of data collection specified ex ante might look for vulnerabilities in the wrong place, particularly if the act of looking by macro- or microprudential supervisors causes the locus of activity to shift into a new shadow somewhere else, which we argue occurred before the recent crisis.

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Document Object Identifier (DOI): 10.7208/chicago/9780226204437.003.0002

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