Remarks of Dino Falaschetti at the GovDATAx Summit
Published: October 31, 2019
Remarks of Dino Falaschetti, Director, Office of Financial Research, at the Data Coalition’s GovDATAx summit, October 30, 2019, Washington, D.C.
Thank you for your kind introduction, Renata.
And I also thank the Data Coalition for inviting me to participate in this important GovDataX event.
I look forward to discussing with you and Commissioner Jackson how our Office of Financial Research (OFR) employs data in support of the Financial Stability Oversight Council (FSOC), which includes memberships for both the OFR Director and SEC Chair.
While I am relatively new to our Office – the Senate confirmed my nomination only a few months ago – I am not new to financial data and the important insights they can offer.
My background includes managing a Fortune 100 corporate finance department, building a top ranked empirical research program in economics, finance, and law, and serving as senior advisor for the President’s Council of Economic Advisors as well as Chief Economist for the House Financial Services Committee. Throughout, I have appreciated complexities of our global financial system.
In terms of priorities for our Office, Title I of Dodd-Frank establishes two centers for the OFR – data and research. My remarks will address our data mission.
The 2008 financial crisis revealed a lack of data to effectively monitor financial vulnerabilities. Lehman’s failure serves as exhibit A. With greater transparency, regulators might have anticipated how exposures to troubled firms could spread throughout our financial system.
In large part, our Office was created to share with regulators the data they need to gauge financial vulnerabilities. Given this history and our legislative mandate, providing FSOC and its members with reliable data is a priority for our Office.
Today, FSOC can access 135 datasets, and we look to expand that to 200. We are also working to better integrate these datasets with an eye toward more comprehensive information for Council members.
Prior to my appointment, FSOC identified an important data gap – one that diminished transparency in short-term funding markets. To help close this gap, our Council recommended that data on bilateral repurchase agreements be collected on a permanent basis.
Our Office acted on this recommendation by adopting a rule to collect data on cleared bilateral repo transactions – a collection that went live earlier this month. We expect to publicly release aggregated data from this collection next year, with the objective of increasing transparency to vulnerabilities in short-term funding markets.
In addition, our dedication to sound data standards is critical for reliably equipping FSOC and its members with informative financial data. As many of you know firsthand, embracing sound standardization principles allows for more consistent and complete reporting, while increasing comparability across firms and industries.
Last week, I met with leaders of the global Legal Entity Identifier (LEI). A key takeaway from those discussions is that broad adoption of common identifiers, such as the LEI, can help regulators better assess market integrity by standardizing financial system data and thus facilitating a more robust monitoring of vulnerabilities.
Legacy systems, however, continue to rely on outdated standards. In many cases, different firms – and different supervisors – have adopted standards that are incompatible with each other.
Our Office will continue to work with others to develop stronger and more consistent data standards, and promote the use of common identifiers, such as LEI. As data quality improves, OFR, FSOC, and its member agencies can increasingly engage in more robust analysis.
Finally, as a card-carrying member of the dismal science, I would be remiss to ignore the charge of a prominent researcher – that is, never assume the animal you are studying is as dumb as the one studying it. In our case, the “animal” we are studying is an incredibly complex financial system that will remain, despite our best efforts, unpredictable on important margins.
You may recall that, during the run-up to our last financial crisis, a Federal Reserve bank warned that too-big-to-fail was still a vulnerability. In addition, a prominent speech at the Fed’s Jackson Hole conference presciently warned about then dormant risks to financial stability. And the White House’s Council of Economic Advisors highlighted threats to financial stability from Government Sponsored Entities (GSEs).
I close with these observations simply to highlight that, while progress has been made since 2008, more and better data does not assure that we will get it exactly right next time.
Thank you all for your good work in this area, and I look forward to our discussion.