| Monday, May 11, 2009 |
Welcome and opening remarks |
Paper I—"Tranching and Rating" Presenter: Michael Brennan, Professor Emeritus, UCLA Anderson School of Management [Paper |
Paper II—"Market Liquidity and Funding Liquidity" Presenter: Markus Brunnermeier, Professor of Economics, Princeton University [Paper |
Dinner and keynote speaker |
| Tuesday, May 12, 2009 |
Welcome and opening remarks |
Policy Session I—Measuring and Managing Risk in Innovative Financial Instruments Innovative financial instruments and products pose several challenges for measuring and managing risk. Claims of improper valuation and inadequate risk management have been at the center of the recent credit market turmoil and seem to be tied to the innovative nature of the MBS market and securitization. As financial engineering continues, market participants and regulators will again face the need to update their own pricing models and risk management techniques. This session will survey state-of-the-art knowledge and practices in these areas and offer perspectives on future innovation in risk management. Specifically, participants will discuss the tools available for valuation and risk management and how to evaluate their applicability, the role of rating agencies in managing risk, and the particular challenge of modeling and managing liquidity risk. Paper presenter: Stuart Turnbull, Professor of Finance, University of Houston [Paper |
Policy Session II—Standardization and Clearinghouses as Tools for Lessening Systemic Risk Innovative financial instruments often begin as idiosyncratic OTC products, traded in obscure, two-way transactions. This feature of the market points up the central role of counterparty risk, the resulting murkiness of financial linkages, and concerns regarding systemic risk exposure. Standard contract terms and/or underlying assets, along with the establishment of a clearinghouse, could lessen systemic risk by increasing liquidity and netting counterparty risk. But several specific questions remain: Would such moves be beneficial in the structured finance market and other innovative markets to come? Do financial market participants demand specialized contracts, or are these a result of the natural diffusion and progression of innovation? Would the expectation of standardization lessen innovation? Would a clearinghouse succeed, and how should such entities be formed and regulated in non-equity markets? Would trade reporting create enough transparency to lessen systemic risk, or would it require regulation via exchange-traded instruments? Moderator: Edward Kane, Professor of Finance, Boston College [Presentation |
Dinner and keynote speaker |
| Wednesday, May 13, 2009 |
| Policy Session III—International Exposure to U.S.-Centered Credit Market Turmoil This paper will address the international transmission of financial crises and the challenges of domestic and internationally coordinated regulatory responses.
The underlying assets that triggered the recent crisis were U.S. subprime mortgages. The first alarm bells sounded in Germany. The United Kingdom suffered a bank run, while, until recently, Asia and emerging markets have remained largely unscathed. There are lessons to be learned when liquidity and solvency risks associated with structured investments pervade global financial markets. In addition to illuminating these lessons, this presentation will consider the particular issues raised by the (potential) failure of large banks with cross-border operations. These concerns arise in almost every part of the world that is either home or host to banks with large cross-border operations. Paper presenter: Stijn Claessens, Assistant Director, International Monetary Fund [ Paper |
| Policy Session IV—The Role of Banks in Financial Markets: Policy and Practice This session will explore the current and future role of banks in financial markets. In particular, how will the business models of banks change, and how will they evolve with respect to other financial market participants such as hedge funds?
Commercial banks and investment banks were central to the credit turmoil as originators of structured investment products, as major counterparties in various credit instruments including U.S. Treasuries and repo transactions, and as prime brokers to hedge funds. In the face of an estimated $400 billion of subprime losses, many have questioned how the business models of banks will change. This session will explore the role of banks in financial markets—in terms of the services they provide as well as their structure and integration with other financial market participants. Paper presenter: Gary Gorton, Professor of Finance, Yale School of Management [Paper |
| Luncheon and closing remarks Dennis Lockhart, President and CEO, Federal Reserve Bank of Atlanta |
| Adjourn conference |
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