The National Institute of Finance (NIF) is a proposed U.S. Government entity that would serve as a resource to gather and provide appropriate data for the financial regulatory community. The NIF would also provide the analytical capabilities to monitor systemic risk, perform independent risk assessments of individual financial entities, and provide advice to the Federal regulatory agencies tasked with ensuring the health of the financial system.

The NIF would be an agency of the U.S. Federal Government organized within and under the authority of the proposed systemic risk regulator.

No. The core mission of the NIF will be to support the systemic risk regulator, by delivering a range of data management, analytic and research services.

The NIF would supplement and not supersede the government's existing capabilities, and would not affect the existing authority of regulatory agencies to collect and manage data. To support its mandate, the NIF would establish uniform data standards to assure the accuracy and comparability of the detailed financial data it collects. Financial regulatory agencies may benefit from the NIF's expertise and economies of scale by contracting with the NIF to handle data management tasks on their behalf.

The core functions of the NIF will be to collect, manage and analyze data, monitor conditions in financial markets, and generate non-partisan, objective research. These roles make it broadly analogous to agencies such as the National Weather Service, the National Transportation Safety Board, and the National Labs run by the Department of Energy. 

The fundamental benefits of the NIF are three-fold: It will improve the efficiency and effectiveness of financial regulation; it will reduce the likelihood of systemic crises and costly institutional failures; and it will consequently increase public confidence and trust in our financial markets.

A National Institute of Finance would benefit the U.S. financial services industry in three ways:

It would reduce operating costs. Standardizing data reporting will dramatically reduce back office costs (costs associated with verifying details of trades with counter parties) and costs associated with maintaining reference databases (legal entity and financial instrument databases). Morgan Stanley estimates that implementation of the NIF will result in 20% to 30% savings in operational costs.

It would improve risk management. By requiring daily reporting of all positions to the NIF, firms will be able to present a complete picture of their positions to their own internal their risk management groups. This will in turn ensure that senior management has a consistent and clear understanding of the firm's exposures – particularly their exposure to different counterparties during times of economic stress.

The Committee to Establish the National Institute of Finance (CE-NIF) is a volunteer-led effort. Its goal is to see that financial regulators are provided with the data and analytic tools necessary to monitor systemic risks and safeguard the financial system.

The CE-NIF was founded by John Liechty and Arthur Small, professors at Penn State University; Allan Mendelowitz, Member and formerly Chair of the Federal Housing Finance Board; Mark Flood, an economist; and Mark Reesor of the University of Western Ontario.

The CE-NIF's goal is to see financial regulators equipped with the data and tools they need to regulate the financial services industry effectively. We are currently working to have proposed legislation formally establishing the NIF passed into law as a vital component of impending financial regulatory reform.

No. The CE-NIF is not an industry-funded initiative or front group. It was founded by a small group of academics and regulators who have no financial stake in seeing the NIF created. The Committee has invited members from the financial services and information technology industries with the chief goal of working together to create a healthier and more transparent financial system. Industry luminaries work alongside participants from governmental, academic, professional and international organizations.  Commercial interests do not own, control, or finance this initiative.

No.  The NIF proposal is not intended to block other efforts at financial regulatory reform.  We believe that no matter how Congress reforms the authorities assigned to financial regulators, effective systemic risk monitoring and management will require the capabilities put forward in the NIF proposal.

The NIF will collect four main types of data, all of which serve as inputs to models of systemic risk:

1. Instrument reference data — the legal and contractual structures that define financial instruments;
2. Entity reference data — the participants in the issuance and transactions process and their relationships (e.g., parent-subsidiary hierarchies);
3. Transactions and positions data — detail on the transactions and holdings of financial institutions;
4. Market data —  market prices, trading volumes, and other key measures (e.g., volatilities) that emerge from the trading process.

By providing common reference databases and a common reporting language, the NIF will be able to integrate the data it collects in an automated fashion. Because the NIF will require entities to send electronic cc’s for all of their transactions, on a regular basis, the NIF will always have a current view of the financial system. Because these data will be properly organized and tied together in a consistent manner and because the NIF will have dedicated high performance computing resources to process the data, the NIF will be able rapidly to provide decision-makers with needed summaries and aggregations – especially during a time of crisis.

Data on contractual terms and conditions -- such as the interest rate, principal, and maturity of a loan -- are key ingredients in risk calculations. We recommend that such data be captured at the most granular level: as attributes of specific legal contracts. The alternative is to capture the information at some higher level of aggregation, such as the average interest rate and maturity across all loans in a portfolio. However, aggregated data are necessarily and unavoidably less informative than fully granular data. Detailed data will provide the flexibility required to feed a diverse range of risk models.  The resulting insights will be invaluable in identifying future systemic fragilities, whose source cannot be predicted today.  Because granular, contract-level data will typically constitute business confidential information, data security will be a core feature of the NIF.

Wherever practicable, the NIF would collect data at the most granular level. Aggregation is a one-way street: granular data can be aggregated, but the original detail ordinarily cannot be recovered from aggregated data. Collection of granular data is recognized as a best practice, and it governs data collection strategies at most financial, commercial and telecommunication companies today. It is facilitated by advances in data storage and data access software. Once collected, however, the same data might be used in aggregated form for any number of purposes, such as calculating regional summary statistics, or peer group benchmarks for industry subgroups. “Tick” (or trade-level) data is a good example: data on each trade enables analysis at the most granular level (trade detail), as well as at aggregated levels (end-of-day, quarter by quarter, year over year, etc.).

The NIF can be expected to increase the efficiency and productivity of financial firms. As required upgrades to IT systems, needed to standardize reporting, are implemented across the industry, there would be increases in operational efficiency.  This would likely lead to  a decrease in demand for  lower-skill jobs  involved with routine collection and manipulation of financial data, and an increase in demand for  higher-skill and higher paying jobs involved with systems integration and the development of analytic tools and software.

By establishing and maintaining reference databases for financial entities and financial instruments and making these available to the public, the NIF would subsume a function currently carried out by commercial data vendors. For these vendors, the maintenance of reference databases constitutes an expensive necessity, rather than a substantial commercial opportunity. The standardization of reference databases would lower costs for the financial data vendors, allowing them to focus their resources on higher-value activities.

Small banks and financial firms already largely rely on off-the-shelf software and services from third-party data and systems vendors for portfolio management. Consequently, the NIF should not impose significant new operational burdens on small banks. In addition, the public reference databases maintained by the NIF would provide benefits to all market participants, particularly those too small to maintain or purchase their own substitute services. In this way, the NIF would help level the playing field for institutions of all sizes.

We believe that the creation of the NIF would put the U.S. at a competitive advantage vis-a-vis other jurisdictions. By helping to reduce the threat of hidden systemic risks, the NIF would increase investors' confidence in the U.S. markets.

As proposed, the NIF would be funded through assessments on the financial institutions that report data to the NIF.  Reporting institutions would realize efficiencies from the use of centrally maintained and universally accepted data standards. As proposed, the NIF would not increase the burdens on U.S. taxpayers, nor increase the federal deficit.