|Sarah N Lynch; Emily Stephenson; Reuters|
The idea was to create a premier U.S. data powerhouse that would be a
Their pitch worked.
But more than three years since the passage of the 2010 Dodd- Frank law, it is struggling to stay relevant.
Its first formal study, which found possible risks posed by the activities of asset managers like
The office must compete for top minds on a lower pay scale than some other agencies. And crucially, other regulators are hesitant to share data and expertise.
Even some of the office's key backers criticized its early work. The office, or OFR, needs a turnaround to avoid becoming a second- class bureaucratic operation, succumbing to regulatory turf wars and becoming unable to spot a brewing financial crisis.
"In order to be effective, OFR must have data integrity and thorough, accurate analysis," said U.S. Senator
"The office has to raise its game," Reed said of the asset management report.
The agency has roughly 185 staff members, and Berner hopes to have 300 in 2015. Its fiscal 2013 budget, financed through fees on big banks, is about
The office takes annual looks at simmering stability risks and, observers say, has made progress tracking financial transactions.
"Now that we are starting to get some critical mass on the research side, the data side and the technology side, the progress is coming faster," Berner said in an interview. "The accomplishments are substantial."
The idea for the research office took shape at a
"We felt a great sense of urgency," Small said, to make sure the idea got into the Dodd-Frank law.
One member gave the 2009 presentation at the
Dodd-Frank gave the office two major tasks: One is to standardize financial transaction data so regulators can eventually monitor asset bubbles as they form. The other is to support the
The OFR's first big project came in 2011, when the FSOC wanted to know if the activities of asset managers posed risks to financial stability.
These firms buy stocks and bonds on behalf of investors and, together, handle trillions of dollars in assets. If the FSOC dubbed a manager "systemic," it would face costly mandates to rely less on debt and be regulated by the Federal Reserve.
At the time, the OFR was understaffed and had few in-house markets experts. The Federal Reserve Bank of
Economists from all of the federal regulators also agreed to participate in early-stage meetings to develop the report, except the
But when the OFR eventually circulated drafts,
The OFR toned down and shortened the final report in
The asset management industry said it was misleading and inaccurate.
Berner has since said the
"Their fingerprints are on the report as well," he said at a recent event in
A spokesman for the
Data sharing has been a wider problem. It took the OFR nearly two years to access Federal Reserve data on overnight funding methods, or "repo" loans, that regulators think fueled the financial crisis, a person familiar with the matter said.
The Fed took so long because it wanted to ensure the data would be secure, the person added.
The Fed, which declined to comment, is notoriously careful about sharing bank data lest it accidentally become public. It requires memoranda of understanding, or MOU, detailing safeguards for sensitive data.
The OFR now is early into a similar effort to get data on annual stress tests run by the Fed. Dodd-Frank directed the OFR to weigh the efficacy of the tests, which consider how banks would fare in a crisis. But it does not have the Fed data yet.
"The OFR should do whatever it takes to gain access to the data collected by the Federal Reserve, the
Berner said the office would seek an MOU with the Fed to share the data, but to date it has not made a formal request.
The office is still in its early stages, and many of its supporters remain optimistic about the office's potential. They point to the OFR's work on an international effort to create unique identifiers for financial institutions that would be used like barcodes to track activities.
"My analysis is that without the OFR, that probably just wouldn't have happened," said Small, the economist who helped push for the office. "That's a first, critically important step in making the financial system machine-readable."
But the OFR is also still working to staff up and, at times, struggles to compete for talent within the government.
The Fed, which has huge cachet among economists looking for government experience, launched its own research unit around the same time as the OFR. It pays better, too.
The OFR's advisory panel said a PhD making around
Berner said the office's pay practices are evolving, and it is "making the changes we need to make" to hire more.
Still, the unit needs more top-tier talent and critical data if it is to spot the next crisis before it lands.
"The OFR has a strong potential. It's unencumbered by regulatory responsibilities. It has funding. It has access," said
"But for a variety of operational reasons, it seems to have not been able realize its potential," he said. "I'd really like to see this office succeed and have it become a center of excellence for systemic risk."
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