Could Dodd-Frank protect us from a Eurozone meltdown?
One of the most remarkable features of the 2008 financial crisis was how few people saw it coming—either on Wall Street or in Washington. To prevent a repeat event, the authors of Dodd-Frank created the new Office of Financial Research, devoted to gathering and analyzing information about systemic risks and other threats to the US financial system. Supporters say that it could help assess, for instance, the kind of counterparty risks that US financial institutions would face if the Eurozone debt crisis turned into a true financial meltdown.
Rep. Barney Frank (D-Mass.), ranking member of the House Financial Services Committee. (SOURCE: BLOOMBERG ) But like many other parts of Dodd-Frank, the implementation of OFR has only begun getting off the ground—and has already come under attack from Republicans who’ve described the office as “Orwellian” in nature.
Part of the Treasury Department, the Office of Financial Research is meant to support the newly created Financial Stability Oversight Council by gathering and analyzing information from financial firms, assessing potential risks and the best ways for the government to address them. It’s also meant to standardize and streamline data-reporting requirements, with the ability to subpoena firms for information if deemed necessary. “One of the problems they had with the  crisis is investors overestimating the amount and quality of the collateral—it’s very possible that’s still the situation, says Michael Bleier, a lawyer at Reed Smith and former staffer at the Federal Reserve Board who’s been tracking the office’s progress.
Sen. Jack Reed (D-RI), who helped write the office into Dodd-Frank, agrees that there could be information and analytic gaps in our understanding of how Eurozone fallout could affect the US. “I don’t think anyone is going to say with confidence, ‘We have a very good, detailed picture of where all the potential problems are, and how they might affect us,’” he tells me. “What’s frustrating is that this agency, if it were operating, it would give us better information.”
Certainly, the next big threat to the global financial system could come even before the office is fully able to get on its feet. OFR has begun staffing up and laying the groundwork for its work to identify data gaps, standardize data, and identify the parties to financial transactions, as an adviser to the agency told Congress. It’s becoming more aggressive about making such early efforts public, with its first big conference slated for early December.