The recent crisis demonstrated the fallacy of composition inherent in traditional microprudential supervision. In addition to understanding the vulnerability of individual institutions, supervisors must monitor the state of the system as a whole. An important facet of systemic monitoring is our ability to comprehend the relationships that connect participants. This brings special measurement and policy challenges. We argue that a robust approach should focus on financial contracts as a unit of measurement, and respect the state-contingent nature of supervisory data requirements. We present some specific suggestions for possible components of a measurement framework.
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