risks for many market participants. Solving the incentive problems has been the primary goal of regulatory reform. Solving the risk assessment problem is at the heart of the workshop discussions.

To measure risks of individual firms and systemic risks of the financial system as a whole requires both data and models. Models of volatility predict the magnitude of short-run price movements. Over longer horizons, there is a possibility that the risk itself will change, or at least that the volatilities will change. Thus, long-term risk measures must reflect the way that risks are likely to change. Counterparty exposures are important systemic risks in the over-the-counter derivatives markets, and these can be managed by a combination of central clearing, collateral contracts, and improved transparency.

Regulators should have access to counterparty exposures and position data in Engle’s view. In this way, models can predict the impacts of stresses that flow through networks of counterparties and positions ultimately affecting the whole system. His talk discussed new research on systemic risk measures. Such measures can be constructed from public information or, with more precision, from nonpublic information. He argued that systemic regulators should be given access to these data and, in the meantime, should continue to develop models of systemic risks based on public financial data.

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