The CIA of Finance?

One of the new creations from the Dodd Frank Act of 2010 is the Office of Financial Research within the U.S. Department of Treasury. This new office’s mission is to delve into the inner workings of the financial system to identify potential systemic risks. That means they have the power to secure any and all confidential information from financial services companies. As a result, many view the new office another CIA. Bloomberg Businessweek provided the following view in an article this week.

In a nod to its abilities to peer into the uncharted depths of the financial system, lobbyists are calling it the CIA of financial regulators. The analogy may not be far off. Housed within the Treasury, the office will have both data collection and analysis arms. The law says it can demand “all data necessary” from financial companies, including banks, hedge funds, private equity firms, and brokerages. That would include previously secret details such as who the counterparties are for credit default swaps and information on individual loans such as interest rate and maturity. If companies aren’t forthcoming, the director of the office can issue subpoenas. Providing the staff support to the new Financial Stability Oversight Council—and holding a nonvoting seat on the council, which will monitor the banking system for risks—the research office can require companies to submit “periodic reports” to help it determine which firms to keep tabs on.

Proponents say the office’s central mission is to help spot the next financial crisis as it is forming. “This gets to the essence of what really causes problems,” says Clifford Rossi, a former chief risk officer at Citigroup (C) now with the University of Maryland’s Center for Financial Policy. “No single agency was really looking holistically across the entire system, going ‘holy smokes, we’ve got a bubble of monumental proportions here.’ “

With new powers such as these, the U.S. government is increasing the level of regulatory risk for financial services companies and will certainly create a new sense of paranoia in the corporate world.

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About Wheelhouse Advisors
Wheelhouse Advisors LLC is the publisher of The ERM Current™, an online publication and blog dedicated to providing the latest updates on current trends in Enterprise Risk Management & Control. Wheelhouse Advisors provides cost-effective Enterprise Risk Management & Control solutions to both large and mid-size corporations. To learn more about Wheelhouse Advisors, please visit our web site at www.WheelhouseAdvisors.com.

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