Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Financial Research Office Deserves Our Full Support

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Financial Research Office Deserves Our Full Support

Article excerpt

For all the criticism of the Dodd-Frank Act, one thing the law does right is fill the informational and analytical blind spots that allowed our economy to unwittingly approach the precipice of disaster. Little noted among the law's 2,300 pages and 16 titles is a section creating the Office of Financial Research within the U.S. Treasury Department. The humble pie on which JPMorgan Chase chief Jamie Dimon is now feasting should be shared generously with those in Congress who would dismantle this valuable arm of government. The Office of Financial Research has the mission of collecting and analyzing data about the financial system. The results will be made available to the new Financial Stability Oversight Council to help it carry out its duties monitoring systemic risks. The results are also available to the public. The law banishes the willful blindness and passivity of financial regulators before the crisis.

There is a movement in Congress, however, that would bring back the not-so-good old days.

And, just to prove their point, the House Financial Services Committee recently held hearings on the efficacy of the OFR a day after voting to disband the office. One representative went so far as to justify eliminating it on the basis that "everyone knew" about the looming financial crisis in 2008, so who needs an early-warning system? Order up another copy of Michael Lewis' "The Big Short" for the good congressman.

Evidence of the potential good that can come from the OFR is found in the work it has already undertaken. It has reached out to experts in the academic community and in the private sector to establish the best practices in risk management.

In December, the OFR, Treasury and the Financial Stability Oversight Council co-sponsored a major conference bringing together leaders from the regulatory community, academia, public interest groups and the financial services industry to discuss data and technology issues and analytical approaches for mitigating threats to stability. Isn't this the kind of activity we all wish was taking place in Washington during the lead-up to the financial crisis? But the OFR is more than a gabfest among policy wonks. The first two working papers it has produced are notable for their clarity and foresight on systemic risk.

The first paper, "A Survey of Systemic Risk Analytics," provides a comprehensive examination of the various ways to measure systemic risk and considers the feasibility of an early-warning system for financial crises. In an ideal world, systemic-risk monitoring would work much like the National Weather Service, providing advance notice of hurricanes so that authorities and market participants can put staff and resources in place, minimize exposure and plan for the impending event and immediate aftermath. …

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