Tags: Berner | senate | mutual fund | financial

Senate Banking Subcommittee Oversees Office of Financial Research

By    |   Wednesday, 05 Feb 2014 06:53 AM

The Senate Banking Committee's Subcommittee on Economic Policy, chaired by Jeff Merkley, D-Ore., held a hearing Jan. 29 titled "The Annual Report and Oversight of the Office of Financial Research."

The sole witness was Richard Berner, director of the Office of Financial Research (OFR), which was created under the Dodd-Frank Act to inform the Financial Stability Oversight Council (FSOC).

When I attend public events like this, normally it is to take notes and to interact with some of the participants, not to ask questions, and rarely to challenge the panelists, during the event. However, several years ago, Berner appeared in a different capacity at the Treasury at an event on the Dodd-Frank Act and gave the standard administration speech about how the events of 2008 came as a complete surprise, and the authorities lacked the power to deal with the crisis, but now, thanks to Dodd-Frank, they have an array of new powers that we can use to make sure this never happens again.

My perspective is that upon starting working for Congress 40 years ago, the financial crisis had already been underway for years, and every time it would flare up, Congress would pass another landmark bill to make sure this would never happen again. In 1989, as Treasury Secretary Nicholas Brady was making this statement, I turned to whoever was next to me and said, "Yes it will." So on this particular day, I said during the Q&A, "You had the powers under all these previous laws, but you didn't use them."

With that background, this hearing was instructive, because Berner laid out the major threats to the stability of the financial system that have been indentified in annual reports of the FSOC, and he reported on where the OFR stands in trying get the information the FSOC needs in order to decide which financial institutions pose these risks and require heightened supervision.

The hearing was marked by an aggressive effort on behalf of the mutual fund industry to resist the designation of any of its members as Systemically Important Financial Institutions (SIFIs). Several Republican senators spoke up on this issue, and Sen. David Vitter, R-La., cited statements by former House Financial Services Committee Chairman Barney Frank, D-Mass., co-author of Dodd-Frank, and Peter Wallison of the American Enterprise Institute, a leading pro-industry critic of the Act, saying the Act never intended to designate mutual funds as SIFIs.

When senators argued that no single fund was large enough to threaten the financial system, Berner had to point out repeatedly that the industry tends to adopt a given strategy industrywide, so that an adverse market event can ripple through the industry and beyond.

Thus, this hearing illustrates once again that after each episode of the financial crisis, when the public is engaged and demands to know what went wrong, Congress enacts legislation to give more power to the agencies that failed to use the powers they had. Then, once the economy seems superficially to have recovered, everyone returns to business as usual.

(Archived video can be found here.)

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Robert-Feinberg
The Senate Banking Committee's Subcommittee on Economic Policy, chaired by Jeff Merkley, D-Ore., held a hearing Jan. 29 titled "The Annual Report and Oversight of the Office of Financial Research."
Berner,senate,mutual fund,financial
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2014-53-05
Wednesday, 05 Feb 2014 06:53 AM
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