Wall Street to Systemic Risk Overseers: Collect Existing Data First
December 10, 2010
The newly created agency to monitor systemic risk should figure out how to use the sizable amounts of data available from federal regulatory agencies before it asks the securities industry to cough up more.
That’s the conclusion of a report entitled "Systemic Risk Implementation: Recommendations to the Financial Stability Oversight Council and the Office of Financial Research," written by James Sivon a partner with the law firm of Barnett Sivon & Natter in Washington DC and financial services consultant Gregory P Wilson of Gregory P Wilson Consulting.
“At issue is the fact that the OFR doesn’t have an easy way to access all of the data because of the different formats in which it is stored,” says Sivon in an interview with Securities Technology Monitor. “That means it is likely need to set up an industry group to figure out how to standardize the data models to understand the information.”
The report recommended that the OFR study three types of data: institutional information already collected from financial institutions; other financial market information already available publicly and broad economic macroeconomic data, which are not reviewed by a single authority. The third category is data on “interconnectedness.”
That data, held by the Office of the Comptroller, Federal Reserve, Securities and Exchange Commission, and state agencies includes funding and liquidity; interest rate positions; capital; and credit trends. Other available macroeconomic information includes LIBOR rates, credit default swap spreads, housing GSE growth rates, and foreign-owned debt.
Missing is the more granular data on counterparty risk, long and short positions, collateral and collateral calls, risk profiles and derivatives positions with stress tests. That’s where the financial industry has to fill in the gaps, says Sivon. To that end, the OFR recently issued a request for proposals on an industry utility to create and generate identification codes for counterparties in derivative and other transactions.
Financial firms are pretty concerned about just how much time and cost they will incur to come up with the data the OFR wants in the format it wants. The less data they have to provide, the easier it will be to comply.
The recommendation for the OFR to leverage existing data is one of several made in the report commissioned by the Anthony T. Cluff Research Fund of the Financial Services Roundtable, a trade group of some of the nation’s largest banks. The report was published in September but not made publicly available on the website of the Financial Services Roundtable until recently.
Among other key recommendations: that the OFR define systemic risk as “the threat that a material event – whether an unexpected crisis, failure of proper risk management or the result of public policies would result in the failure of other financial markets or a significant number of financial firms and cause significant harm to the US economy because of the interconnections between markets and firms.
A full copy of the report can be found at http://www.fsround.org/publications/pdfs/2010/SystemicReportFINAL.NEW.pdf.
