Despite my assessment of current vulnerabilities, conditions can change quickly. And important blind spots in our view of the financial system remain, in part owing to data gaps. When it comes to financial stability, what you do not know really can hurt you--and there remains a good bit we do not know.
This lack of data can impede the design of regulation. There is a long history of data collection focused on banks, and supervisory data have contributed to our quantitative approach to regulation and supervision. For example, when we examine the likely implications of the failure of an institution's largest counterparty, we learn a great deal about the health of that institution and gain greater insight into its connections, through that counterparty, to other institutions.
But data on a range of activities--including securities lending, bilateral repos, and derivatives trading--that create funding and leverage risks remain inadequate and hence could prove destabilizing if sufficiently large or widespread. We gain some insight into these markets through our supervisory relationships with the largest bank holding companies, but the activities of important nonbank market participants, such as asset managers, and the interconnections across institutions remain more opaque.
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While the steps to improve data taken so far will help, gaps will remain, especially with regard to unregulated or weakly regulated entities. These gaps impede both market participants' ability to discipline the risks taken by institutions and supervisors' ability to take prompt action. Nonetheless, I would also like to emphasize to this group of researchers that better data, by themselves, are only the start of the journey to better understanding.