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Friday, July 20, 2012 - 12:47

New US Office of Financl Research Closer to Assessing Threats

WASHINGTON (MNI) - One of the mechanisms of the Dodd-Frank Act with the most enemies, the Office of Financial Research, told Congress Friday it is getting close to investigating threats to financial stability.

In its first annual report, the OFR said there is "an emerging consensus" that policymakers need to better understand how financial institutions and markets actually work.

"Structural vulnerabilities within the financial system remain in short-term funding and derivatives markets," the report said. "Short-term funding markets remain subject to run risk and more needs to be done."

The office, which is part of the Treasury Department, sees as a "critical potential source of risks" to the financial system the absence of high-quality data and weaknesses in data standards.

Since it is endowed with subpoena power, it can force any company to turn over whatever internal documents it wants, the reason cited by many of its opponents.

The report said the academic community has proposed "hundreds" of ways to improve financial stability and that many cannot be evaluated because of gaps in data. "The OFR will work to fill these data gaps," the report said.

OFR officials told reporters said that among the first priorities is to collect data on over-the-counter derivative transactions. The officials said they are pleased with the cooperation they have received so far from financial industry firms, both in the United States and elsewhere. Asked how soon they might use subpoena power, the officials said only they are finding a cooperative atmosphere.

Asked if the lack of a Senate confirmation of Berner is hampering the OFR's organizational efforts, the officials said confirmation would add to the legitimacy of the organization but it has not yet slowed down efforts to get the agency moving.

On the LIBOR scandal, the officials said that trust is important to the functioning of the financial system.

The OFR reports to the Financial Stability Oversight Council and is led by former Morgan Stanley chief U.S. economist Richard Berner despite the fact he has not yet been confirmed by the Senate as required.

Several members of Congress have vowed to destroy the OFR. Since its more than $150 million budget is derived from assessments on financial institutions, not congressional appropriations, it has so far been able to fill its new offices without interference.

** MNI Washington Bureau: 202-371-2121 **

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