Though much of the attention to the recently enacted regulatory reform law has focused on its creation of a consumer protection bureau, the Dodd-Frank Act also created an Office of Financial Research with an ambitious mandate — one many doubt it can accomplish.
The office is tasked with collecting data on behalf of the Financial Stability Oversight Board and analyzing it to spot risks to the economy. Though observers praise the effort, many pointed to challenges, including who the agency will target, how much information it will collect and whether it can successfully analyze the data.
"We have no reason to believe they would succeed where others have failed," said Wayne Abernathy, the executive director of financial institutions policy and regulatory affairs at the American Bankers Association. "There's nothing in the creation of this that overcomes the bubbles you've seen all along. The problem with bubbles is, no one sees it."
Under the law, the OFR is an independent unit within the Treasury Department that is designed to be a data collection, research and analysis arm of the systemic-risk board. The agency will be run by a presidentially appointed, Senate-confirmed director with a term of six years and have a nonvoting seat on the oversight board.
The data office must report to Congress on the state of the financial system two years after the law's enactment and annually thereafter. Its director must also report to Congress annually on the office's activities and its assessment of systemic risk.
To accomplish its mission, the OFR was given authority to issue regulations and collect data, including subpoena power to gather information from any financial company, not just those deemed systemically important. The agency may also require companies periodically to submit additional data.
But it is unclear what companies the agency will target and how far down it will drill to collect data. Observers said that, despite its mandate to collect information, the OFR will not necessarily be able to detect systemic risks beneath its tons of data.
