NYU Stern

Financial Regulation Project

 

An important ongoing project in the Salomon Center is studying financial crises and the resulting regulation, denoted the Financial Regulation project, directed by Matthew Richardson. The financial crisis that unfolded in the Summer of 2007, and went pandemic in September 2008, transformed the United states and world economies. As each day's headlines brought stories of bank failures and "shadow"; bank runs and rescues, government policies drawn and redrawn against the backdrop of needed changes in the worldwide financial architecture, and solutions that seemed to be discarded almost as soon as they were proposed, the NYU Salomon Center brought together a team of between thirty to forty academics, mostly at NYU, to study and tackle the hard questions. The initial work focused on the causes of the financial crisis and offered proposals for market-based solutions while capturing the attention of policymakers in Washington, producing Restoring Financial Stability: How to Repair a Failed System (Wiley 2009).

Later, the Financial Regulation project concentrated on all aspects of the resulting regulations being written in the United states and abroad. For example, the Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. The initial goal of the project was to provide a detailed description of each part of the Dodd-Frank Act, an economic appraisal of its strengths and weaknesses, and a careful examination of key omissions that regulators need to urgently consider, since failure to do so could lead to the next crisis. This work resulted in two books, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley 2010), and Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance(Princeton Press 2011).

As 11 different regulatory agencies now begin the process of adopting the Act's 243 new formal rules, the analysis now focuses on how best to implement these rules whose outcomes will shape the future of global financial architecture for years to come. As part of its ongoing work, The Center continues to be involved in putting together various conferences, supporting research and providing educational activities (i.e., courses and events) for students that try to understand the financial crisis of 2007-2009.

Aside from the tremendous research effort, the Financial Regulation project has focused on two particular areas, one being a collaboration with the Volatility Institute on providing an analysis and rankings of the systemically important financial institutions here and abroad, http://vlab.stern.nyu.edu/welcome/risk. In particular, the SYSTEMIC RISK page of the Volatility Laboratory presents a variety of risk measures for major US Financial Firms and, in the future, global financial firms. These measures are updated weekly and reveal several dimensions of risk. Historical estimates of each of these risk measures can be plotted to see the changing performance of individual firms. A considerable amount of academic research based on these measures is in the works.

The second area of focus has been putting on world-class conferences and events for practitioners, academics and regulators, as well as for students. Since the Fall of 2007, the Salomon center has put on 30 conferences and symposia. (For a complete list, click here.)