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How would the NIF affect the commercial data vendors? |
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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. |
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Last Updated on Wednesday, 10 March 2010 13:01 |
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How would the creation of the NIF affect jobs? |
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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. |
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The NIF proposal is ambitious. Is this too much to bite off all at once? |
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The NIF will not begin its work in a vacuum: it will build on a large base of established work related to data systems and analytics which are important to understanding systemic risk. Indeed, a substantial part of the NIF's development process will involve the integration of existing operational and prototype systems that have already been created in the regulatory, academic, financial and information technology communities. Leveraging these existing efforts will help to ensure the efficient, effective, and timely operation of the NIF. |
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Why would the NIF be funded with non-appropriated funds? |
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There is a well established precedent in the federal government that agencies involved in the regulation and monitoring of financial firms and markets are funded through assessments placed on the regulated firms. Funding the NIF in this way yields three principle benefits. The first is that the taxpayers would not be burdened with paying the budgetary costs for the NIF. The second is that financial firms will realize significant reductions in operating expenses as a result of the standardization of data systems that will be a core responsibility of the NIF. It would not be fair for the taxpayers to absorb the cost for this effort and then have the financial firms reap all of the financial benefits. The third is that Congress has recognized that attracting the special skills needed to perform this work requires being able to pay salaries that are above the standard civil service pay scale. Funding the NIF with non-appropriated funds makes it possible to pay more competitive salaries. |
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How would creating a National Institute of Finance benefit the U.S. financial services industry? |
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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. It would create a safer and more competitive market. By helping improve individual firm risk management and providing better tools to the regulators to monitor and oversee systemic risk, the U.S. financial markets will be made safer, and will attract more business than competitors that are more prone to major shocks or collapses during times of economic stress. |
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FAQs: Role of the NIF 
