New Systemic Risk Rankings from NYU Stern Help Regulators...

[Stacey Oyler]

New Systemic Risk Rankings from NYU Stern Help Regulators Identify Firms That Threaten Health of Overall U.S. Economy

Last month, New York University's Stern School of Business launched a new rating system designed to rank the level of risk that the largest U.S. financial institutions bring to the overall health of the financial system.

The NYU Stern Systemic Risk Rankings, launched on April 21st, uses stock quotations and other market data from 1990 to the present to help provide regulators with an early warning when an individual firm could threaten the overall health of the nation's financial system. The rankings are based on the award-winning work of Professor and Nobel Laureate Robert Engle, who directs NYU Stern's Volatility Lab.

"Consistent with the vision of NYU Stern's Volatility Lab, we view our Systemic Risk Rankings as a research laboratory, a first step towards better understanding the systemic risk of financial firms," Engles said in a statement announcing the rankings' launch. "By making these rankings available over the web, we hope they start a dialog with academics, practitioners and regulators alike, generating new ideas for measuring systemic risk," he added.

The ranking system grew out of an extensive research effort by NYU Stern faculty surrounding the 2008 financial crisis. By using available market data, the ultimate goal of the rankings is to give regulators a tool that is more efficient and transparent than individually scrutinizing confidential company financial data, Engles said.

In contrast to rating the individual risk of a firm, the new rankings indicate which firms present the greatest risk to the overall U.S. economy at a given time. "These are the firms that regulators should be watching closely," said Matthew Richardson, Finance Professor and Director of NYU Stern's Salomon Center for the Study of Financial Institutions.