Robert Engle, NYU Stern School of Business
The financial crisis revealed the serious impact on the real economy that could be caused by the collapse of a large financial firm. Regulatory policy naturally should strive to deduce the probability of such events. The Stern Systemic Risk Rankings are a market based measure of the relative risk of US Financial Firms. These are based on estimating the fall in equity value that can be expected in a future crisis using modern time series methodology. Estimates of capital shortfall in such a crisis are computed and provide a ranking of firms.