New York University

To rank global financial firms according to the systemic risk they pose for the world economy

  • Amount $311,556
  • City New York, NY
  • Investigator Robert Engle
  • Year 2011
  • Program Research
  • Sub-program Economic Institutions, Behavior, & Performance

Among the provisions contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act is a requirement that regulators figure out which institutions contribute the most to systemic risk so that these companies can be supervised more closely. Making such a determination requires the creation of a sophisticated, empirically-tested, theoretically-informed model of how firm qualities contribute to systemic risk. Funds from this grant support the ongoing efforts of NYU Stern School Business Professor and Nobel Laureate Rob Engle to develop such a model, allowing a comprehensive ranking of firms that pose the most danger to the global economy. Engle's work subjects firms to a form of stress test, modeling how easily firms could meet regulatory requirements in the event of a sudden drop in asset prices similar to the one that roiled markets in the fall of 2008. Grant funds will allow for the refinement of Professor Engle's model, and for expansion of his rankings to include not just U.S. firms, but international firms as well.

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