Institution-Specific Systemic Risk Assessment Methodology
16 November 2010
By Christopher Laursen with Dr. Ethan Cohen-Cole
This report outlines a risk assessment process that may be used to determine the level of systemic risk posed by various individual financial institutions. Application of the assessment methodology to a broad set of financial firms will allow rank ordering of firms in terms of systemic risk. The authors note that the process should be considered while regulators devise new guidelines that require the Financial Stability Oversight Council (FSOC) to identify financial institutions posing significant systemic risk. The relative rankings provided by the process will allow the FSOC to properly prioritize its oversight efforts across the broad spectrum of financial market participants. This report was prepared for the Property Casualty Insurers Association of America, which referenced NERA's rating system in its response to the FSOC's Advance Notice of Proposed Rulemaking related to identifying systemically important financial institutions.
