Second, a regulatory requirement for firms to report the inputs necessary for the FTRM would force these firms to maintain the information themselves.
If reporting the FTRM becomes as basic as filing a 10-K with the Securities and Exchange Commission, with comparable penalties for reporting failures, then firms will--once and for all--get this crucial piece of accounting right.
Last, and most importantly, the FTRM provides data about the aggregate derivatives exposure for each firm, and aggregate exposure to implicit guarantees for off-balance-sheet entities.
By generating a constant flow of this failure-oriented data, researchers can begin to tease out relationships between the off-balance-sheet risk measured by FTRM and other factors.
Initially, the FTRM will not be very helpful in providing a basis for risk-management decisions.
The FTRM addresses that issue not by assuming that such backstop failure will ever occur, but by using the size of that economic footprint as a proxy--and test variable--for the systemic risk that a given firm may carry.
The FTRM proposed here raises far more questions than I have answered: Who will determine what constitutes off-balance-sheet exposure?