The OFR Blog

| By Alex J. Pollock, Hashim Hamandi, Ruth Leung, OFR*

Banking Credit System, 1970-2020

This essay puts the depository institutions industry into broad historical perspective, looking at the fifty year changes from 1970 to 2020.

| By Stacey Schreft

Updated Bank Data Show Rising Systemic Importance of Asian Banks

New data on the world's largest banks show the increasing systemic importance of Asian banks. The data also show that U.S. banks' systemic footprint still dominates the global totals. Indeed, eight U.S. banks are still considered global systemically important banks (G-SIBs). G-SIBs must hold more capital than other banks. Among the U.S. banks in the tier below G-SIBs, the U.S. operations of a few foreign banks rank as the most systemically important.

| By Stacey Schreft

How Do Hedge Funds With a Few Big Investors Manage the Risk of Runs?

Open-end mutual funds and exchange-traded funds pose more risks when a small number of investors own much of the fund. These funds could receive unexpected requests for large redemptions. A Securities and Exchange Commission rule requires these funds to have liquidity management programs in part to account for this investor concentration risk.

| By Stacey Schreft

OFR Update on Bilateral Repo Collection

Delivered at the meeting on November 16, 2017, of the principals of the Financial Stability Oversight Council (FSOC or Council)

| By Matthew Reed

For years, we have recognized the enormous potential benefits of the Legal Entity Identifier (LEI). Establishment of this fundamental data standard was one of the key steps the G-20 took after the financial crisis to retool the global financial infrastructure, and the LEI now serves as a linchpin for making sense of derivatives data stored in repositories around the globe. The LEI, like a bar code for financial market participants, now identifies firms from almost 200 countries — more than 700,000 LEIs in all.

| By Stacey Schreft

How Well Will a Central Counterparty Withstand Severe Credit Stress?

Many derivatives trades that would have been conducted directly between the buyer and seller before the financial crisis now go through central counterparties (CCPs). Reforms after the financial crisis promoted the use of CCPs. This arrangement improves transparency and reduces counterparty risk, as long as market participants manage that risk properly. If they don’t, a CCP’s links to member firms could increase systemic risk.

| By Stacey Schreft

Money Market Funds' Floating NAVs Stay in Narrow Range for Now

Money market funds long sold shares in normal times at a stable price, usually $1.00. But in the financial crisis, one fund "broke the buck" and investors fled. A new rule requires shares of some types of funds to trade at a market-based net asset value. The OFR’s analysis finds that so far these values have not varied much.

| By Stacey Schreft

The Case for Including Capital Buffers in Stress Tests

Since the financial crisis, regulators have subjected the largest U.S. banks to stress tests to ensure they can withstand major shocks. They have also introduced the concept of "capital buffers," extra cushions of capital held by banks to absorb potential losses under stress.

| By Stacey Schreft

New Data Highlight Changes in Systemic Risk Posed by U.S. and Chinese Banks

Three of the biggest U.S. banks have moved up in systemic risk ratings, according to new international data the OFR added today to its online interactive chart. The risk ratings of Chinese banks also rose, continuing a three-year trend.

| By Stacey Schreft

OFR Monitor Shows Accelerating Shift to Government Money Market Funds

Assets of U.S. prime money market funds have decreased by more than $700 billion since the beginning of the year, while assets of government money market funds have increased by about the same amount, according to the OFR’s monthly U.S. Money Market Fund Monitor. This trend accelerated in August.

| By Stacey Schreft

Central Clearing of Derivatives May Not Always Have Cost Advantage Over Bilateral Trading

The financial crisis showed that over-the-counter (OTC) derivatives can create risks for the financial system. G-20 reforms have sought to reduce those risks by requiring central clearing of standardized contracts. They also set higher capital and collateral requirements for derivatives that are not centrally cleared. Part of the motivation for those requirements is to create an incentive for banks to clear through central counterparties (CCPs).

| By Stacey Schreft

The OFR Introduces Interactive U.S. Money Market Fund Monitor

The Office of Financial Research today released its Money Market Fund Monitor, a set of interactive charts for exploring the portfolios of U.S. money market funds.

| By Stacey Schreft

Map Gives Clearer Picture of Pathways That Affect Financial Stability

Scientists have long used network analysis to track and contain the spread of disease. A new OFR brief applies a similar approach to identify potential paths of contagion in the U.S. financial system.

| By Stacey Schreft

A messy but important problem for OFR researchers and data experts is linking information about a financial services company from diverse sources. Regulators, investors, and the public face the same issue.

| By Stacey Schreft

OFR Brief Examines Living Wills Prepared by Eight U.S. G-SIBs

What would happen if a large U.S. bank were to fail?

The Dodd-Frank Act of 2010 requires the largest U.S. banks to submit plans to regulators on how they could be wound down after a potential failure without disrupting the financial system. These plans are known as resolution plans or living wills. Eight global systemically important banks (G-SIBs) are based in the United States.

| By Stacey Schreft

Replacing Credit Ratings in Financial Regulation

The Dodd-Frank Act of 2010 required federal financial regulators to drop references to credit ratings from their regulations. An OFR brief by John Soroushian, released today, describes the alternatives to credit ratings that regulators have adopted. It also analyzes some of the challenges they face.

| By Con Crowley

Data Inventory Is Key to Data Sharing and Accessibility

We recently posted the 2016 update to the Interagency Data Inventory on the OFR's website. This inventory, which contains basic information about data collected by agencies of the Financial Stability Oversight Council, or FSOC, plays an important role in facilitating access to data for analyzing threats to financial stability.

| By Stacey Schreft

New Data Shed Light on Global Banking Risks

The OFR released a brief today that analyzes new data about global systemically important banks (G-SIBs). The OFR also introduced an onlineinteractive chart for users to compare data about the 30 G-SIBs. A G-SIB is a large bank or bank holding company whose failure could pose a threat to the global financial system.

| By Stacey Schreft

OFR Working Paper Evaluates Form PF in Gauging Risk

The working paper analysis reveals that funds with identical Form PF filings could have significantly different risk exposures. The form allows such significant tolerance for risk exposures to differ among funds that it does not adequately reflect the differences. This tolerance is much larger among funds with derivatives.

| By Stacey Schreft

OFR Working Paper Shows Impact of Credit Default Swap Stress across the Banking System

An OFR working paper published today uses data about the credit default swap (CDS) market to evaluate the impact on banks from default of their largest counterparties. It also takes a macroprudential perspective to consider not only the impacts on individual banks, but on the financial system as a whole.

| By Stacey Schreft

Lessons from the Bilateral Repo Data Collection Pilot

An OFR brief released today analyzed new data about a critical part of the U.S. financial system. The brief provides the first statistics on the U.S. market for bilateral repurchase agreements (repos).

| By Greg Feldberg

Seasonality in Repo Markets Described in Latest Working Paper

An OFR working paper published today documents that the amount of a key type of short-term borrowing by foreign-owned broker-dealers has declined by about 10 percent at the end of each quarter since July 2008 and rebounded at the beginning of each following quarter.

| By Greg Feldberg

Working Paper Explores Literature on Financial Networks and Interconnectedness

The OFR released a working paper today that reviews the rapidly expanding research on network models of the financial system.

| By Greg Feldberg

OFR Paper Highlights Challenges in Interpreting the Liquidity Coverage Ratio

An OFR working paper released today illustrates some of the complexities in interpreting the Liquidity Coverage Ratio (LCR), a new standard set by bank regulators after the financial crisis to help ensure banks maintain enough liquid assets to cover their financial obligations during times of stress.

| By Greg Feldberg

OFR Paper Models Impact of Market Structure on Prices Under Stress

Concern has focused recently on the apparent fragility of market liquidity, which refers to the ability to buy and sell securities with a minimal price impact and is essential for markets to operate efficiently. Although liquidity may seem adequate under normal conditions, it seems to disappear abruptly in times of stress.

| By Matthew Reed

Financial Company Reference Database Now Available for Free to the Public

A financial company reference database envisioned by the Dodd-Frank Act has become a reality. The international database is free, frequently updated with new information, and available.

| By Greg Feldberg

OFR Working Papers Take New Approaches to Evaluating Central Counterparty Risks

The OFR released two working papers today that focus on the potential risks of central clearing of over-the-counter derivative transactions.

| By Greg Feldberg

Paper Funded by OFR Grant Examines High-Frequency Trading and Large Datasets

A recent paper funded by the OFR through its joint grant program with the National Science Foundation offers insights into the impact on the financial system of high-frequency trading, contributes to developing technologies for working with large datasets, and fosters understanding of market liquidity.

| By Patricia Mosser

OFR Brief Examines Data on Systemically Important Bank Holding Companies

The OFR released a brief today analyzing new data about the nation’s most systemically important bank holding companies — financial institutions whose failure could pose the greatest threat to the international financial system.

| By Barbara Shycoff

Year In Review: The Office of Financial Research

The Office of Financial Research (OFR) capped a year of progress in promoting financial stability a few weeks ago by releasing its 2014 Annual Report to Congress, a publication that highlights our important work.

| By Matthew Reed

Legal Entity Identifier System Turns a Corner

The global project to assign unique identifiers to parties in financial transactions has turned a corner, bringing the world closer to mapping connections in the financial system and cutting industry costs for cleaning, aggregating, and reporting data.

In the past week, the global Legal Entity Identifier (LEI) system crossed the threshold to move from a start-up initiative to an operational, steady state.

The defining moment was the inaugural meeting of the Board of Directors of the Global Legal Entity Identifier Foundation on June 26 in Zurich, Switzerland. Under the continued oversight of the LEI Regulatory Oversight Committee (ROC), the Foundation will now begin to assume management of LEI operations across the globe.

| By Matthew Reed

Legal Entity Identifier System Gains Global Momentum

As global acceptance continues to spread, governance for the Legal Entity Identifier (LEI) system advanced today. The LEI, like a bar code identifier for entities that engage in financial market transactions, promises to be a linchpin for making connections in the massive volumes of financial data that course through the international economy every day.

​The Financial Stability Board (FSB), an international coordinating body established by the G-20 to promote global financial stability and regulatory coordination, endorsed today the nomination of 16 directors for the Global LEI Foundation (GLEIF), a key element for governance and a critical step forward.

| By Barbara Shycoff

Year In Review: The Office of Financial Research

This past year, the Office of Financial Research​ (OFR or Office) has advanced substantive work to achieve its mission, building on its progress since being established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The OFR, led by Director Richard Berner, is ramping up its services to the Financial Stability Oversight Council (Council), Council member agencies, and the public by working to improve the quality and scope of financial data available to policymakers and to conduct and foster sophisticated analysis of the financial system.

Last week, the OFR submitted its 2013 Annual Report to Congress, fulfilling a requirement to annually assess the state of the United States financial system and analyze threats to U.S. financial stability. The report describes a prototype Financial Stability Monitor, a comprehensive new tool developed by the OFR for tracking threats and the interplay among them.

| By Matthew Reed

System Taking Shape to Assign IDs for Financial Market Participants

This is an exciting time for those of us at the Treasury’s Office of Financial Research ​and others around the world who have been working to establish a global system for precisely identifying parties to financial transactions.

The Legal Entity Identifier, or LEI, is like a bar codea unique ID for companies participating in global financial markets. The need for an LEI system has long been recognized. However, the recent financial crisis exposed the critical nature of that need, when government regulators and market participants were unable to quickly assess exposures to failing firms or the network of interconnections among financial companies and markets.

| By Jonathan Sokobin

OFR Working Paper Explores Innovative Models for Analyzing Threats to Financial Stability

How might the dynamics of a flock of birds in flight, a group of drivers in a traffic jam, or a panicked crowd of stampeding people inform our analysis of threats to financial stability?

In the third paper of our Working Paper Series - Using Agent-Based Models for Analyzing Threats to Financial Stability​ - the staff of the Office of Financial Research (OFR) explores these questions as we seek better ways to monitor risk to the financial system.

| By Dessa Glasser

The Financial Stability Board (FSB), which brings together global financial regulators and policymakers, reached a critical milestone this week in the initiative to establish a worldwide standard for uniquely identifying parties to financial transactions. This linchpin for financial data, known as the Legal Entity Identifier (LEI), will allow financial companies and financial regulators to better understand true exposures and counterparty risks across the global financial system.

During the financial crisis neither institutions nor regulators were able to accurately assess direct or indirect global exposures to troubled companies, hampering efforts to manage, and to respond to, risks. A major reason was the absence of a consistent way of identifying counterparties in the numerous and disparate databases that financial firms and regulators maintain for tracking global financial instruments and positions. By filling this critical gap, the LEI will be a valuable tool for identifying risks associated with these exposures and helping to prevent such critical failures in the future.

| By Jonathan Sokobin

OFR Working Paper Series Continues with Forging Best Practices in Risk Management

A key part of the mission of the Office of Financial Research (OFR) is to promote best practices in financial risk management. Today, in the second paper of its Working Paper Series, the OFR issued a paper that provides a broad assessment of risk management practices and how risk management can be improved: Forging Best Practices in Risk Management.

The paper approaches risk management from three perspectives: risk measurement by individual firms, governance and incentives, and systemic concerns. Although the paper separately evaluates each approach, it also includes a discussion on the importance of considering these three dimensions of best practices in risk management as interrelated. The paper concludes by defining important areas for continued research and for modifying the role of risk management in financial firms’ business decisions.

| By Dessa Glasser

Applauding Progress on the Global LEI Initiative

Key international regulators and policymakers have taken another step forward in the global initiative to increase transparency in financial transactions. The Financial Stability Board (FSB) recently announced progress in making the global financial system more transparent and less vulnerable to excessive risk-taking through the creation of a Legal Entity Identifier (LEI) Expert Group. The formation of the LEI Expert Group will build on the work of Treasury’s Office of Financial Research (OFR) and its global counterparts in advancing the LEI initiative. The OFR has played an active role to help build international consensus and facilitate adoption of a global LEI standard and we are excited to support the Expert Group in its efforts.

| By Jonathan Sokobin

Launching the OFR Working Paper Series with A Survey of Systemic Risk Analytics

The Dodd-Frank Act created the Office of Financial Research (OFR) because policymakers and the public need better data and analysis to help them assess and respond to threats to financial stability. With that goal in mind, the OFR is launching a Working Paper Series that will make available the OFR’s work on the analytics and measurement of such threats in depth. Today, we release our first Working Paper – A Survey of Systemic Risk Analytics, by Dimitrios Bisias (MIT), Mark Flood (OFR), Andrew W. Lo (MIT), and Stavros Valavanis (MIT).