Technical Capabilities Necessary for Regulation of Systemic Financial Risk: Summary of a Workshop (2010)

As the United States recovers from perhaps the most severe economic and financial crisis since the Great Depression, we are learning about and seeking to repair many of the shortcomings in our financial regulatory system. Among the lessons learned is that our regulators face significant limitations in the data and analytic tools they have available to identify and mitigate potential systemic risks that cut across financial institutions, products, and regulators.

As has been identified by a number of individuals and organizations, policymakers and regulators have faced significant challenges resulting from the lack of the necessary tools to fulfill their obligations to monitor and manage the health of financial markets. Financial regulators, including any new systemic risk regulator that Congress creates, will need clear responsibility, sufficient authority, adequate tools, and comprehensive data to monitor and mitigate systemic risks.

In considering reforms to financial oversight, we must have a better understanding of the existing data and analytical capabilities of current regulators, and what specific additional tools and resources are needed to successfully modernize regulators’ ability to fulfill their missions. As such, I would request that the National Academy of Sciences prepare an analysis of this issue that examines:

• the data and analytical tools that currently exist among regulators to address risks in the financial system;

• the data-collection and analysis capabilities that are needed to ensure that regulators can successfully address systemic risks in the future;

• the resource needs that are associated with these improvements;

• the technical challenges that are associated with systemic risk supervision; and

• the options that exist for building these capabilities, including high-priority research questions.

It is my hope that the National Academy of Sciences can complete this analysis by October 31, 2009. Thank you for your attention to and consideration of this request. I look forward to your response.