Committee to Establish the
 
National Institute of Finance
Providing the data and analytic tools needed to safeguard the U.S. financial system
Home FAQs: Role of the NIF
FAQs - Role of the NIF
Who will bear the burden of the OFR’s budget costs?  E-mail

The budgetary costs of the OFR will be paid for by the large firms that will be reporting data to the OFR. This is appropriate for two reasons.

First, it is well established that financial firms pay for government oversight and regulation. After all, regulation is about protecting the American public from the types of excesses that created this recent crisis and for which the U.S. taxpayers were forced to bear an exceedingly high cost.

Second, the improvement in data and reporting standards throughout the financial sector will reduce the operating costs of financial firms by billions of dollars a year. It is only right that some of these savings are used to fund the costs of operating the OFR.

The OFR is one of those rare win-win outcomes for both the public and industry. The government will be able to regulate financial markets and firms more effectively. Financial firms will pay for its operations, but they will benefit from reduced operating expenses that will be many times larger than the amount that they will have to contribute in order to fund the OFR.

 
Who will benefit from the OFR?  E-mail

First, the American people will benefit because it will equip the government with the data and monitoring capabilities needed to help assure that we do not have a repeat of the 2008 financial crisis and costly Wall Street bailouts.

Second, the American people will benefit because the OFR’s data improvements will make the U.S. capital markets more transparent and efficient, reducing the ability of Wall Street to transfer excessive risks to the broader financial system or unsuspecting investors.

Third, the government will for the first time have the data needed to detect massive financial fraud, like the $70 billion Ponzi scheme run by Bernie Madoff. With OFR data the SEC could have detected and ended this fraud more than a decade ago.

Lastly, not only will the American people benefit, the financial sector will also benefit. Right now the state of data in financial industry is chaotic and disorganized at best. The data and reporting standards required by the OFR will result in two benefits for financial firms. First, the operating costs of the financial firms will be reduced by a substantial amount per year. Second, the financial firms will be able to better understand and manage their own risks because they will have much better data regarding what is going on in their own firms.

 
Is there any connection between the OFR and the new consumer financial product safety agency?  E-mail

There is no connection between the two offices. They are entirely separate and independent offices. They have no relationship to one another than they both have a seat on the FSOC. The OFR will be collecting data and doing analysis that are critical to identifying systemic risk and preserving financial stability in the market as a whole. The new consumer financial product protection agency will be looking at financial products that are offered to individuals and households.

 
Doesn't the U.S. Federal Government already have plenty of economists? Why do we need this?  E-mail
No institution presently has the capacity and mandate to gather comprehensive data, and to conduct the applied research needed to safeguard the financial system against systemic risk. Managing systemic risk in a timely and comprehensive manner is a different challenge from those regulators have addressed in the past. Meeting this challenge will require novel interdisciplinary collaboration among experts in statistics, applied mathematics, operations research, network analysis and computer science, as well as financial economics. The data and analytic needs will be significant and the NIF will take advantage of economies of scale in staffing and computing resources in ways that our individual, focused regulators cannot.
 
If the U.S. adopts this approach while other jurisdictions do not, how would the competitiveness of U.S. financial markets be affected?  E-mail

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.

 
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