Alert July 31, 2012

Office of Financial Research Issues First Annual Report to Congress and Identifies Gaps in Financial Regulators’ Analysis of Risks to Financial Stability

The U.S. Department of the Treasury’s Office of Financial Research (“OFR”) issued its first Annual Report to Congress (the “Report”) as required by Section 154(d) of the Dodd-Frank Act.  As stated in the Report, the OFR is directed under Section 153(a) of the Dodd-Frank Act to support the Financial Stability Oversight Council (the “FSOC”) by, among other things,

1.  collecting data for the FSOC (and its member regulatory agencies) and providing the data to the FSOC and its member agencies;

2.  performing applied research and certain long-term research; and

3.  developing tools for risk measurement and monitoring.

The Report says that “significant gaps” remain in the analytical work done by financial regulators regarding the recent financial crisis, but Treasury Secretary Tim Geithner said that the OFR has made important progress “in addressing weaknesses exposed by the financial crisis with data and analytical capacity not available before Wall Street reform.”  The Report, which focuses on detection, measurement and analysis of systemic risk, includes sections that address, among other topics:

  • analyzing threats to financial stability (including shadow banking);
  • research on financial stability (including stress testing and best practices for counterparty risk management);
  • addressing data gaps (including improvements in financial system monitoring); and
  • promoting data standards and their benefits.