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THE ANNUAL REPORT OF THE OFFICE 

OF FINANCIAL RESEARCH 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 5, 2014 

Printed for the use of the Committee on Financial Services 

Serial No. 113–63 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

PATRICK T. MCHENRY, North Carolina, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

MICHELE BACHMANN, Minnesota 

SEAN P. DUFFY, Wisconsin 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

AL GREEN, Texas, Ranking Member 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

CAROLYN B. MALONEY, New York 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

February 5, 2014 .............................................................................................. 1 

Appendix: 

February 5, 2014 .............................................................................................. 31 

WITNESSES 

WEDNESDAY, FEBRUARY 5, 2014 

Berner, Hon. Richard, Director, Office of Financial Research (OFR), U.S. 

Department of the Treasury ................................................................................ 4 

APPENDIX 

Prepared statements: 

Berner, Hon. Richard ....................................................................................... 32 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

McHenry, Hon. Patrick: 

Letter to the SEC from Better Markets, Inc., dated November 1, 2013 ...... 43 

Letter to Hon. Patrick McHenry and Hon. Al Green from the U.S. Chamber of Commerce, dated February 4, 2014 .................................................. 55 

Letter to the SEC from the Vanguard Group, Inc., dated November 

26, 2013 .......................................................................................................... 58 

Maloney, Hon. Carolyn: 

Letter to Hon. Richard Berner dated August 18, 2011 ................................. 68 

Letter to Hon. Gene Dodaro dated August 23, 2013 ..................................... 70 

(1) 

THE ANNUAL REPORT OF THE OFFICE 

OF FINANCIAL RESEARCH 

Wednesday, February 5, 2014 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 3:05 p.m., in room 

2128, Rayburn House Office Building, Hon. Patrick T. McHenry 

[chairman of the subcommittee] presiding. 

Members present: Representatives McHenry, Fitzpatrick, Duffy, 

Hultgren, Wagner, Barr, Rothfus; Green, Ellison, Maloney, 

Delaney, Sinema, and Beatty. 

Chairman MCHENRY. This hearing of the Subcommittee on Oversight and Investigations will come to order. Today, we are pleased 

to welcome the Director of the Office of Financial Research for the 

annual report of the Office of Financial Research, a statutorily required element of the Dodd-Frank Act. 

And without objection, the Chair is authorized to declare a recess 

of the subcommittee at any time. 

I will now recognize myself for 5 minutes for an opening statement. As a creation of the Dodd-Frank Act, the Office of Financial 

Research (OFR) was established with the promise of being an independent, transparent, and apolitical agency that would be able to 

identify systemic risks to the economy and emerging threats to the 

financial stability of the United States; yet 3 years later, OFR has 

failed to provide useful information about the biggest risks facing 

our economy. 

In the 2013 annual report, OFR delivers narrative descriptions 

of a variety of activities, policies, financial products, and financial 

institutions which it maintains pose a threat to the economy. However, it does not prioritize any of these risks, making it incredibly 

difficult for policymakers to determine which risks are considered 

the most pressing and demand immediate attention. 

Just last week in The New York Times, Simon Johnson, the 

former chief economist of the International Monetary Fund, described the annual report as ‘‘not impressive,’’ saying, ‘‘It read like 

some of the less informative systemic risk assessments that we saw 

prior to 2007.’’ 

This past September, the credibility of OFR’s systemic risk analysis was called into question upon the release of the Asset Manager’s Report, which critics panned as a study that reflected a funVerDate Nov 24 2008 12:13 Aug 26, 2014 Jkt 088525 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\88525.TXT TERRI
2 

damental lack of understanding of the asset management industry. 

I concur. 

And the criticism did not come from industry trade associations 

and asset management firms alone. In fact, left-leaning financial 

advocate group, Better Markets, said through one of their leaders, 

Dennis Kelleher—in a comment letter to the SEC, he said, ‘‘Rather 

than focusing on the known systemic risks which materialized just 

5 years ago, which inflicted widespread economic wreckage across 

the country, OFR chooses to take aim at the asset management 

buy side of the financial industry, which, by comparison, presents 

much lower risk and played no role or virtually no role in the most 

recent financial crash.’’ 

The former chairman of this committee, Barney Frank—whom I 

do not often quote—said about the asset management report, ‘‘It 

just seems to me a listing of possible horror stories with no indications that there was any significant likelihood of any of it happening.’’ 

Certainly, Barney said it with a little more flair than I just gave 

you and certainly a lot faster, but having said that, Dr. Berner, the 

OFR was sold to Congress and to the American people as an entity 

that would act as an early warning system. Through the promise 

of topnotch research, OFR was expected to help predict the next 

crisis. With an annual budget of roughly $86 million this last year, 

the OFR really needs to show it is a value to the American people, 

which to date you have failed to do. 

So, I appreciate you being here. 

And I yield the balance of my time to my colleague from Missouri, Ms. Wagner. 

Mrs. WAGNER. Thank you, Mr. Chairman. 

Out of all the regulatory creations in Dodd-Frank, I am not sure 

there is anything more troubling than the Office of Financial Research. As if Americans needed yet another agency collecting unlimited amounts of information from the American public for bureaucrats to pore over, there is tremendous concern that this agency will do nothing but misinform regulatory decisions and increase 

the risk of crippling cyber attacks. 

Beyond these operational concerns, the OFR was created under 

a false premise that regulators did not possess enough information 

leading up to the financial crisis, but as any well-informed autopsy 

of the crisis will tell us, it was lack of will, not lack of information, 

which contributed to the regulatory failures of the past decade. Or 

as one witness put it to this committee at a 2011 hearing on OFR, 

‘‘The risk of Fannie Mae could be seen on an abacus.’’ It is therefore no surprise that the OFR’s recent report on asset managers 

was greeted with criticism from all sides of the political spectrum. 

And when you unite the left and the right these days in opposition 

to what you are doing, it is fair to say something is more than 

amiss. 

I believe this to be an unnecessary and potentially dangerous 

agency. And I think the question today should not be what reforms 

could improve a fundamentally flawed agency, but whether the 

OFR should be outright abolished. 

I thank you, Mr. Chairman, and I yield back. 

3 

Chairman MCHENRY. We will now recognize the ranking member 

of the subcommittee, the distinguished colleague of mine from 

Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

And thank you, Dr. Berner, for your testimony today. I would 

also like to thank the staff for the exceedingly good job that has 

been done in helping with the preparation for this hearing. 

Today’s hearing is an opportunity to learn more about the Office 

of Financial Research’s work last year as well as what we can expect from their 2014 agenda. By the end of 2007, the top 5 banks 

had assets of $6.8 trillion or 49 percent of GDP. Similarly, the top 

securities firms accounted for $3.8 trillion or about 27 percent of 

GDP. 

In the years leading up to the financial crisis, our regulatory 

framework was simply unprepared to handle the growing risk and 

eventual collapse of a large interconnected financial institution. 

The financial crisis revealed deficiencies in our understanding of 

the financial system, including the extent of leverage, the migration of financial activities to underregulated or lightly regulated 

markets and entities, and the potential for disruptions to spread 

across interconnected companies and markets. 

The crisis also revealed that the data available to monitor the financial system was too aggregated, too limited in scope, out of 

date, or otherwise incomplete. Accordingly, Wall Street reform created the Office of Financial Research (OFR) to support the Financial Stability Oversight Council (FSOC) and its member agencies. 

The OFR’s mandate includes standardizing financial data, performing essential research, and developing new tools to measure 

and monitor risk to the financial system. The OFR is designed to 

complement the work of FSOC member agencies by filling gaps in 

data and knowledge about the financial system. As such, the OFR’s 

2013 annual report highlights the progress we have made in reducing the risk in our financial system as well as identifies areas 

where further information is needed. OFR’s report on asset management and financial stability is consistent with its mandate to 

support the Council in its efforts to identify and mitigate threats 

to financial stability. The report was produced at the FSOC’s request, which asked OFR to examine how activities of the asset 

management industry could transmit risk through the financial 

system. 

Admittedly, OFR itself identified significant data gaps in its report that limited a full evaluation of the industry. However, OFR 

has since assured us that it will continue to work with the Council 

member agencies to identify those gaps, prioritize them, and assist 

the Council as it continues to work to analyze the asset management industry. 

We should be clear, Mr. Chairman, as to what this report is and 

what it is not. It is not a green light to designate actors in the industry as systemically important institutions. Rather, it is a first 

step towards better understanding a critical part of our financial 

markets. 

The asset management industry provides important points of access into capital markets for commercial investors and can be an 

important piece of wealth building for the American middle class. 

4 

Mr. Chairman, the FSOC and the Office of Financial Research 

are central to the overarching objectives of Wall Street reform, and 

they must be given the opportunity to refine their research, rulemaking, and deliberative process. 

We understand from the financial crisis that there was a lack of 

collaboration and information sharing between the regulators. Both 

the FSOC and the OFR are important to ensure regulators are 

working together to monitor systemic risk. Similar Councils have 

been formed in Europe, and if given time, they should all work together effectively to ensure the global financial system is not 

threatened as it was in 2008. 

I yield back the balance of my time, Mr. Chairman, and thank 

you for being generous. 

Chairman MCHENRY. I certainly appreciate the ranking member. 

Today, we will hear from the Director of the Office of Financial 

Research, Richard Berner. Prior to his confirmation as OFR Director, Dr. Berner served as a Counselor to the Secretary of the Treasury, with responsibility for standing up the OFR. Before joining 

Treasury in April of 2011, Director Berner was co-head of the global economics division of Morgan Stanley, and previously served in 

senior positions at Mellon Bank, Salomon Brothers, Morgan Guaranty Trust Company, and the Federal Reserve Board, all fairly 

well-known institutions. And Director Berner has won several economic forecasting awards as well. He received his bachelor’s degree 

from Harvard College, and a Ph.D. from the University of Pennsylvania, again, other well-known institutions. 

Dr. Berner, you are familiar with the process of testifying on the 

Hill. We have the lighting system, very simple for us Members of 

Congress: green means go; red means stop; and yellow means 

hurry up. So with that, we will give you 5 minutes to summarize 

your written statement. 

STATEMENT OF THE HONORABLE RICHARD BERNER, DIRECTOR, OFFICE OF FINANCIAL RESEARCH (OFR), U.S. DEPARTMENT OF THE TREASURY 

Mr. BERNER. Chairman McHenry, Ranking Member Green, and 

members of the subcommittee, thank you for the opportunity to testify this afternoon on behalf of the Office of Financial Research 

about our 2013 annual report. It is good to be back here. 

Let me take this opportunity to reaffirm two commitments: first, 

to make the OFR a valued resource for Congress, the Financial 

Stability Oversight Council, and the American people; and second, 

to be transparent and accountable. Our annual report and my testimony here are two of the ways we honor those commitments. 

Last March when I was here, I discussed our progress as a startup organization. Today, we are not only standing on our own, but 

we are making significant contributions to promote U.S. financial 

stability. 

This second annual report to Congress and our other work described in the report are evidence of that. In my written testimony, 

I discussed four key topics in our annual report: monitoring and 

analyzing potential threats to financial stability; data collection 

and analysis; data standards; and data security. I would like to 

give you some highlights from each of those. 

5 

Thanks to an array of policy measures and industry actions, the 

U.S. financial system has grown stronger and more stable since we 

issued our inaugural annual report in July of 2012, however, 

threats to U.S. financial stability remain, and we must remain vigilant. 

To help identify and monitor those threats, we have developed a 

new tool, our prototype financial stability monitor. Our annual report discussed a first version, which we will refine and improve 

over time. Our report identified and analyzed eight threats to financial stability. Recent events have thrown one of them into 

sharp relief. Emerging markets have come under significant pressure and the stress has spilled over quickly into global markets for 

other assets. We are continuing to monitor these developments 

carefully. 

Taking stock of existing data is necessary to fill data gaps and 

to avoid duplication in data collection. To that end, we recently 

published and will maintain an interagency data inventory of data 

held by all Council member agencies. 

Our report outlines several initiatives to improve the scope and 

quality of financial data, including our work with the Federal Reserve Bank of New York on data related to short-term wholesale 

funding markets. 

It is essential to analyze the data that we and others collect. For 

example, our first look at hedge fund leverage using aggregated 

data from foreign PF, which is collected by the SEC and the CFTC. 

Data standards are critical to improve financial data quality. The 

OFR has led an initiative for a standard, called the Legal Entity 

Identifier (LEI). Like barcodes for financial transactions, LEI’s benefit industry by helping to lower reporting costs, they benefit regulators with better data for policy decisions, and they benefit researchers with consistent data for analysis. 

We have worked with others in the Council to highlight the need 

for another data standard, a single cradle-to-grave standard for 

mortgage data, called the Universal Mortgage Identifier. To be 

truly useful, data standards must be universally adopted, so I have 

called on regulators in the United States, and globally, to require 

use of the LEI and other standards through regulatory rulemaking. 

No objective is more important to us than keeping data safe and 

secure. We have a multifaceted data security program that builds 

on the security infrastructure of the Treasury Department. We also 

have specific safeguards tailored to our unique mission, as well as 

securities standards and policies for acquiring, managing, and 

sharing data. 

We want to be sure that you and the Congress are fully informed 

about our work. I look forward to opportunities like this hearing in 

the future. More broadly, we will engage with you and your staffs 

to assure that our dialogue is frequent, open, and informative. 

Thank you again for inviting me here today, and I will be happy 

to respond to your questions. 

[The prepared statement of Director Berner can be found on page 

32 of the appendix.] 

Chairman MCHENRY. Without objection, the witness’ written 

statement will be made a part of the record. 

6 

Dr. Berner, I sent you a letter dated in—well, actually, in December of this year, and in my letter, I asked for information about 

the individuals who contributed to the asset management report 

and the relevant background and experience in the asset management industry, and you responded, but you did not answer that 

question. Furthermore, I also asked you to provide a list and description of all the meetings that the OFR held with representatives for the asset management industry in preparing this report. 

Again, you acknowledged that you and your staff met with folks 

from the asset management industry, but you did not provide the 

information we requested. I am now asking if you would be willing 

to provide that information. 

Mr. BERNER. Mr. Chairman, I would be happy to provide that information, meet with you and your staff to provide that information. If you felt our letter was not responsive, we want to make 

sure that it is. 

Chairman MCHENRY. I believe it was not responsive, unfortunately. And I certainly appreciate your willingness to have frequent 

conversations and dialogue. I just want to ensure that the folks 

who wrote the report have the sterling credentials or similar credentials that you do. And I know that is an important part to make 

sure that when we have analysis of data, that our government 

agencies provide sterling data and sterling insight to that data. 

Now, as a part of this, can you explain how policymakers are 

supposed to act on the OFR’s research if the OFR fails to prioritize 

all identified risks? 

Mr. BERNER. Mr. Chairman, the annual report that we presented 

identifies eight risks to financial stability. We could probably enumerate some more, but those are the top eight. So in that sense, 

we did prioritize what we thought were the most important risks. 

Chairman MCHENRY. So of those top eight, is there priority of 

those top eight? 

Mr. BERNER. Mr. Chairman, when we think about threats to financial stability, sometimes those risks are interrelated. Indeed, 

when we looked at the top—the first three that we enumerated, 

those are—as I indicated in my written testimony, those three are 

related, and they are related to a fourth. 

The basic theme there is that where market positioning is, markets may be vulnerable to a sharp unexpected rise in interest rates 

or in volatility. 

Chairman MCHENRY. Sure. 

Mr. BERNER. And that is—there is a— 

Chairman MCHENRY. Bloomberg—for instance, anyone can pay 

the money to get a Bloomberg screen and know that level of information. 

Now, the question is the magnitude of these risks. So if I were 

to ask you what is the single most significant risk to the U.S. economy, what would you say? 

Mr. BERNER. That is a hard question, Mr. Chairman, because 

when we think about financial stability, risks to the financial stability, the reason we talk about threats is that many times they 

don’t come in 1’s or 2’s, they may come in several flavors, and it 

is the combination of those threats when exposed to a shock which 

can expose vulnerabilities in our financial system that have an 

7 

interplay among them, so it is really difficult to say what the top 

risk is right now. 

I would say that there are remaining vulnerabilities in our financial system. One of the ones that we identify in the list of eight relates to short-term wholesale funding markets, which I alluded to 

in my comments a moment ago. That is a risk that has been partly 

addressed by policymakers, but not completely. 

Chairman MCHENRY. Okay. But in terms of the difficulty of as- signing a level of risk, I understand, but you have an $86 million 

budget and you are in—what you are supposed to do in standing 

up this agency is to lay out those risks and prioritize those risks, 

are you not? Aren’t you a part of the process to identify the next 

financial crisis so we can avoid it? 

Mr. BERNER. Actually, Mr. Chairman, I am not sure that we can 

identify when the next financial crisis will occur, nor can we prevent financial crises. What we can do is identify what the risks are 

to the financial system, where its vulnerabilities are in order to inform policymakers about strengthening those vulnerabilities and 

making our system more— 

Chairman MCHENRY. And you said as much before the Senate 

Banking Committee a few weeks ago, a very similar quote, in fact, 

that you can’t predict the next financial crisis. So why are we 

spending $86 million on an agency that can’t do the thing it is supposed to do? It is a basic question. 

Mr. BERNER. Mr. Chairman, the Dodd-Frank Act created the Office of Financial Research— 

Chairman MCHENRY. I am familiar. Yes, sir. 

Mr. BERNER. —to inform the Council and the American people. 

We think that is exactly what we are doing. We think that we are 

giving information to the Council and to the American people in 

order to strengthen the financial system. 

We learned in the financial crisis that it was exactly those weaknesses that had not been immediately visible that contributed 

greatly to the financial crisis. Our job is to help strengthen those 

weaknesses. 

Chairman MCHENRY. My time has expired, but I would say this, 

that when Simon Johnson says that your annual report is not impressive and it reads like some of the less informative systemic risk 

assessments that we saw prior to 2011, that should be deeply troubling to you, with your sterling academic credentials. And you 

should be willing to correct that and to improve that, and I hope 

you will. 

With that, we will now recognize Mrs. Maloney from New York 

for 5 minutes. 

Mrs. MALONEY. I thank the ranking member and the chairman 

for calling this important hearing. 

And I thank our witness. 

The purpose of the Office of Financial Research—and I was one 

of the contributors in authoring it—was based upon language set 

forth in Dodd-Frank to collect industry trade and transactional 

data for review and analysis to proactively prevent any future 

meltdowns like we saw in the Great Recession, and your Office was 

granted a sizeable budget to achieve this goal. And I am going to 

read from the law right now. It says your first duty was to collect 

8 

data on behalf of the Council and provide that data back to the 

Council and member agencies; and secondly, to standardize the 

types and formats of data reported and collected. 

Can you get us in writing what data elements you are collecting 

now? Are you sending that data back? 

And also, one of the important parts of this bill, the Office of Research, was that the data should not come from the industry, because we had data from the industry that was collected, and no one 

could perceive what happened in 2008. So the data was supposed 

to be concrete actions, such as trades, where you could really see 

what was happening. And so my question is, what data have you 

collected and have you come out with a standardized form? 

A problem with the LEI, when do you expect to see the LEI completed? What is the completion date? And as I understand it, foreign areas are part of this, and they are refusing to cooperate, so 

it seems to me it would be better to just collect the data so at least 

you have something. 

I do want to put into the record two letters that I sent to the Office asking for responses in writing. I never received any responses. 

Chairman McHenry, may I place in the record the two letters that 

I sent? I would like you all to review them and see if you would 

like to send your own letter. Maybe it is because I am in the Minority, that I don’t get an answer. Maybe the Majority could get an 

answer. 

Chairman MCHENRY. I would be happy to review that, and we 

will include it in the record of this hearing. 

Mrs. MALONEY. Thank you. 

Chairman MCHENRY. Without objection, it is so ordered. 

Mrs. MALONEY. So what data elements are you collecting now? 

Mr. BERNER. Congresswoman Maloney, thank you very much for 

your question and thanks for your support for the Office. 

We are actually in the process of collecting data through other 

agencies, through financial market utilities. And, as you know, the 

statute requires that we first make sure that the data that we 

want to collect, the data we need to do our analysis, that the Council needs to do its analysis are not available elsewhere. So in order 

to do that, we have constructed the data inventory, which I mentioned earlier, which catalogues all the data held by all the Council 

member agencies. 

We are collecting in very granular form position and transaction 

data related to OTC derivative transactions. That is the first step. 

We are getting those data from a financial market utility. Those 

data are being— 

Mrs. MALONEY. Have you made any contracts with anyone to collect this data? How do you collect this data? 

Mr. BERNER. In the case of those data, Congresswoman, we enter 

into a memorandum of understanding with the financial market 

utility to collect the data, to use them for our research purposes 

and to make sure that we keep them safe and secure. 

Mrs. MALONEY. But the collection, if you are getting it—it was 

our intent to get it from open trades that you know are true as opposed to information that may be handed to you from somebody in 

the industry that may not be true. 

Mr. BERNER. Right. And there are— 

9 

Mrs. MALONEY. And I would like to also go to the LEI. Nowhere 

in our legislation did we mention the LEI or did we require an LEI. 

We were after raw, factual, independent data. And I would like you 

to get back to me on what raw, factual, independent data you are 

collecting. It appears that the trades would be the best, that is 

what people in the industry tell me, because that is a factual data 

element that you can track. 

Mr. BERNER. Congresswoman— 

Mrs. MALONEY. And the LEI is problematic, I am told, because 

some people who don’t have to comply are just not complying, but 

let me ask one question on the LEI. When do you intend to complete the LEI project and how much have you spent to date on the 

LEI project, which we did not even require? 

Mr. BERNER. Congresswoman, the LEI is a great example of data 

standards, which we are required to promote and implement 

through the statute. 

Mrs. MALONEY. No. The statute does not mention the LEI. 

Mr. BERNER. It does not mention the LEI. 

Mrs. MALONEY. I read it. I wrote it. I was part of the team who 

wrote it. We did not mention the LEI. We wanted independent data 

elements. 

Mr. BERNER. Right. And when you talk about transaction data, 

raw data elements, a good example of that would be the data that 

we are working with the New York Fed to collect on repo transactions, positions, position date that will be very granular, as you 

describe it, true and accurate. We are working hard to start out 

collecting those data and will do so, and we will be happy to come 

back to you and report our progress on that for you. 

Mrs. MALONEY. My time is up, but I would like to, in a handshake of bipartisanship, with the ranking member’s permission, request that we come to your site. We would like to see what—it has 

been, what, 3 years, where over 150 million has been—what data 

elements are there? Can we come to your Office and see how you 

are collecting it, where is it? And are these bids, these contracts 

that are collecting it, are they competitively bid? You have said you 

are getting the information directly from the industry. We wanted 

it from independent sources. 

So, Mr. McHenry, would you join me in going to the Office and 

seeing how they are collecting this data? 

Chairman MCHENRY. Actually, if the gentlelady would yield, and 

I will ask unanimous consent that the gentlelady has an additional 

minute, if that is okay. 

Mrs. MALONEY. Thank you. 

Chairman MCHENRY. And if the gentlelady will yield, I would respectfully ask the Director, with the number of comments we have 

received on the asset management report, and the question the 

gentlelady has on this identifier, we have a number of questions as 

Members of Congress, but I think that would be a very helpful 

thing if the Director would be willing to sit down with us on his 

site to show us what he is doing. 

Mrs. MALONEY. Thank you. 

Mr. BERNER. I would be happy to have you come to my site or 

meet with you in your Offices or anywhere in between— 

Chairman MCHENRY. Okay. 

10 

Mr. BERNER. —Congressman. 

Chairman MCHENRY. Thank you. And as a corollary to that, 

would you be willing to have a public forum on the asset management report? 

Mr. BERNER. We have been engaging publicly on the asset management industry. We engaged publicly back in December at a public forum on that. But I am always willing, always more than willing to engage and to have more public forums, more engagement 

with the industry, with you, and with the American people on any 

subject, not just asset management. 

Chairman MCHENRY. So that would be a qualified yes, then? 

Mr. BERNER. It would be a yes. 

Chairman MCHENRY. Okay. Thank you. 

Mrs. MALONEY. Thank you, I yield back. 

Mr. MCHENRY. Okay. I thank the gentlelady. We are the Oversight Subcommittee. A note of bipartisanship is a very nice thing. 

I want to thank my colleague for that. 

We will now recognize the vice chairman of the subcommittee, 

Mr. Fitzpatrick, for 5 minutes. 

Mr. FITZPATRICK. I thank the chairman. 

Director Berner, we all appreciate your testimony here today, not 

just required by the Act, but we all find it very helpful, both bodies, 

as we do our oversight, and where Mrs. Maloney asked a series of 

questions about what kind of data is being collected, provided to 

OFR, my questions have to do with once that data is collected. 

What actions is the Office of Financial Research taking to protect 

that data against unauthorized disclosure? 

As you are aware, Dodd-Frank requires the Office’s Director, and 

this is a quote from the Act, to ensure that the data collected and 

maintained by the Office of Financial Research’s data center are 

kept secure and protected against unauthorized disclosure. However, the annual report, which has been provided to the committee, 

the 2013 report, provides really no indication that OFR has 

achieved this data-protection goal. For example, there is no detailed discussion on how OFR is protecting its data from data 

breaches and cyber attacks. 

There is no accounting of the cyber attacks perhaps that OFR 

has experienced so far. The 2013 annual report does, however, 

state that you have certain priorities for 2014. They include collecting more data in a broad range of financial activities and institutions, including the repo market, securities lending, and asset 

management firms, as well as implementing systems that can analyze and process large data sets. 

So, given these 20—first, I should ask, and I know that you did 

in your written testimony provide some information on data security, for instance, this is in the written testimony, you say that 

technology is necessary but insufficient alone to ensure security. So 

the systems we are building for data acquisition, management, and 

dissemination are accompanied by strict and clear rules for data security and data sharing. 

It sounds like you are continuing to build the systems. Is that 

correct? 

Mr. BERNER. Congressman, this is an ongoing process, building 

data security. But I think we start from a very strong foundation. 

11 

As I indicated in my written testimony that you just pointed to, we 

start with the governance from the Treasury Department and we 

use their standards as a starting point for our security systems. We 

build on that, using technology, using governance, using protocols 

for access to information, depending on the level of sensitivity of 

the information. 

We have taken an active role. One of the aspects of keeping data 

secure is making sure that when they are appropriately shared, for 

example, with another Council member or agency on the Financial 

Stability Oversight Council, that they are kept just as secure by us 

and by the third party in the Council as they are by the original 

provider of the data. 

So all of those things are being worked on. I am pleased to report 

to you that the process of engagement with the Council on getting 

agreement on those protocols is well under way and nearly complete, and that ensures that the controls which are applied to data 

that one agency has will be consistent with all the controls across 

the Council. 

Limiting access to data, making sure that the right people have 

access to the data, only those who need to know, that is also important. The technology governs or controls that access to some extent. 

But we build in the human element just to make sure that there 

is a check and balance system so that nobody has access to data 

they shouldn’t. 

Mr. FITZPATRICK. Given the fact that, it is, I guess you could describe it as a work in progress, what kind of assurances can you 

give either this committee or the original owners of the data that 

supplied it were required to supply to OFR that it is protected 

today? I understand that going forward, there will be changes, 

there will be new protections. How do we know it is protected 

today? 

And the second question would be, if there has been a cyber attack or if there has been an unauthorized disclosure of that information how would we be notified? How would the owner of the information be notified? 

Mr. BERNER. Congressman, as I indicated, we build on the foundation laid by the Treasury Department. And the Treasury systems 

have proven over a long period of time to be secure, and so that 

is one example of that. I would be happy to sit down with you and 

your staff to talk about the particulars of these— 

Mr. FITZPATRICK. Have there been incidents of unauthorized access? 

Mr. BERNER. There have been no incidents of unauthorized access, to my knowledge. But that does not mean that we can take 

comfort that there would not be. We live in a world where that is 

an everyday occurrence. We live in a world where we need to safeguard— 

Mr. FITZPATRICK. Right. 

Mr. BERNER. —and protect our data and we are taking every 

step, every precaution to do that. 

Mr. FITZPATRICK. If there was a cyber attack or an unauthorized 

disclosure, how would we be notified and how would the public be 

notified? 

12 

Mr. BERNER. We would make sure that we follow appropriate 

protocols to let the appropriate people know, including you in your 

right to know as Members of Congress. 

Mr. FITZPATRICK. I yield back. Thank you. 

Chairman MCHENRY. We will now recognize Mrs. Beatty for 5 

minutes. 

Mrs. BEATTY. Thank you, Chairman McHenry, and Ranking 

Member Green. 

And thank you to our witness, Dr. Berner, for being here today. 

You have had a lot of questions about forms and data. So let me 

just add another thread to that. In both the annual report and in 

your written testimony, you talked about the new tool the OFR can 

use to track changes in stability in domestic financial markets, and 

that is the financial stability monitor. One of the things I noticed 

as I looked at the five areas that it also monitors, it is supposed 

to gauge the possible risks to the market stability based on the 

data collected by OFR. But, unfortunately, you mentioned that it 

only looks at the past and the current data that exists. 

So I guess when you talk about these forward-thinking indicators, my question is, can you address to us or share with us if you 

anticipate from researchers in your Office what kind of future 

versions of this financial stability market do you have in mind for 

what those indicators are? 

Mr. BERNER. Sure. Thanks for your question, Congresswoman. 

It is a good question because it is very important that we have 

more forward-looking indicators in any summary statistic that 

looks at financial stability. So one of the ways to make the indicators that we use more forward looking is to try to incorporate the 

relationship between volatility in financial markets, how much 

they move up and down and at what frequency, and the leverage 

that financial market participants may use. 

And there’s theoretical work and empirical work which shows 

that there is a relationship between those, namely the lower the 

volatility, the more leverage that investors, market participants are 

encouraged to use. 

That has future consequences; we know that from the financial 

crisis. That is one of the things we are trying to build in to make 

the financial stability monitor more forward looking in the future, 

and we are hard at work at that right now. 

Mrs. BEATTY. And you mentioned the volatility. Do you have confidence or believe that this financial stability monitor will be able 

to accurately predict the instability based on the current information we have? And if so, why? 

Mr. BERNER. It is a new tool. We are testing it. We are looking 

to assess what information can come out of it. I want to emphasize 

that no tool by itself is a failsafe indicator of where threats may 

lie. 

Obviously, tools are used to inform judgment. And that is precisely the reason that we came up with this tool, because it does 

provide a comprehensive look across the financial system and 

across five key measures or buckets, if you will, of risk. Those are 

functional buckets of risk. We think that they are the right ones. 

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13 

tagion, which expresses the extent to which threats get transmitted 

across the financial system. 

So we are working to improve it constantly. We are going to be 

testing it. We are going to try to assess its validity and its utility 

as a tool to inform our judgment. 

Mrs. BEATTY. In my last minute, let me shift, you talked about 

risks, so let me ask you to address a different type of risk. Also in 

the annual report, the OFR speaks of several different currencies 

to the domestic financial market stability, ranging from the risks 

of risk in the repurchase market to exposure to duration risks. So 

we know we are now in the month of February, and we are approaching our whole debt ceiling date, and in your report you also 

talk a little bit about the one-upsmanship, the brinksmanship in 

how we are looking at this on our side of the aisle and on the other 

side of the aisle. 

So as we are approaching the borrowing limit authorized under 

the deal to end the shutdown at the temporary raising the debt 

ceiling, I reflect back on what happened last year. And so I guess 

what I want to ask you is, as we approach this date, and maybe 

we are looking at that we are not really accepting the use of full 

faith credit of the United States as an unacceptable bargaining tool 

for a whole host of reasons, certainly by not anybody in this committee, but as we look in the broader sense. 

Can you tell us or prognosticate if we have this fiscal policy 

brinksmanship and how it would disrupt the market or if we wait 

until we get to the nth hour of looking at how we are going to take 

care of our debt ceiling, where are we? We are in February. We are 

getting close. 

Mr. BERNER. Congresswoman, thanks for your question. I am 

going to answer briefly because I see that the time is running out. 

But as you point out, the 2011 experience was instructive in that 

regard, and provided us maybe a taste of what could happen if we 

go down that road again. No two of these episodes are alike, but 

I think we can learn from that experience that markets don’t like 

uncertainty and that the kind of developments surrounding that 

event were disruptive to markets, and indeed had some spillover 

into economic activity. 

Mrs. BEATTY. Thank you. 

Chairman MCHENRY. We will now recognize Mr. Duffy for 5 minutes. And if I may ask that gentlemen to yield? 

Mr. DUFFY. Yes. 

Chairman MCHENRY. Thank you. 

Dr. Berner, have you been part of any Congress contingency 

planning within Treasury? Has Treasury asked you to do any research on this debt limit question? 

Mr. BERNER. Mr. Chairman, no, they have not. 

Chairman MCHENRY. Thank you. I will yield back. 

Mr. DUFFY. So we are not speaking with data knowledge. And I 

guess I am not going to go into the $17.3 trillion of debt that we 

have and what happens to countries which experience a debt crisis 

and what that does to their markets. Sure, it is not very pleasant. 

I want to go back to your collection of data and the systems that 

you have in place to secure that data. I believe that you testified 

earlier that the security portion is a work in progress; is that true? 

14 

Mr. BERNER. Congressman, I did say that. It is a work in 

progress. And— 

Mr. DUFFY. And I guess, just quickly, I know that you are currently collecting data, right? You are not waiting until you have a 

great security system in place, you are actually collecting it currently, yes? 

Mr. BERNER. Congressman— 

Mr. DUFFY. Are you collecting data? 

Mr. BERNER. We do have a very good security system in place— 

Mr. DUFFY. My question is, are you collecting data right now? 

Mr. BERNER. We are collecting data right— 

Mr. DUFFY. And you are directing data. And you are coming in 

here and telling us that the security system isn’t really ready, it 

is a work in progress. You don’t leave us a lot of confidence in regard to the information which you are taking and that it is going 

to be secure. 

I am going to follow up on the vice chairman’s comments. Have 

there been any cyber attacks or data breaches on your system? 

Mr. BERNER. Congressman, I prefer not to use those in a public 

forum. If there have been any, not to my knowledge, as I indicated, 

but I would be happy to come up and talk to you and your staff 

both about the steps we are taking to continually strengthen security, which is already strong, as well as the possible risks that may 

arise from any attacks. 

Mr. DUFFY. I appreciate that. And I will take you up on the offer 

to meet with me privately. I know there could be some concerns 

about bringing things up publicly. But in this public forum, that 

also gives me concern that if there have been security breaches or 

cyber attacks, that necessarily hasn’t been made public and hasn’t 

been brought to our attention. And so if there has been data that 

has been compromised, it goes back to, I think, the chairman’s earlier point. Is there a system in place to actually let people know 

that there are breaches and that there are cyber attacks that potentially have been successful? 

And I know you have referenced, I believe, Treasury and their 

standards. You couldn’t really articulate them for us, and we are 

going to ask you on a whole wide range of issues, and you can’t be 

prepared on everything, I am sensitive to that. I wish you would 

be able to tell us about the security that you have in place. And 

the process you have that is available to notify individuals and 

Congress of those breaches. 

Are you currently collecting information from firms and/or consumers? 

Mr. BERNER. Congressman, we are not collecting information 

from firms, with one exception. 

Mr. DUFFY. Okay. 

Mr. BERNER. In serving the needs of the Financial Stability 

Oversight Council and in a ministerial role, as an agent role, for 

the Council’s non-bank designation process, we have been asked to 

collect data to support that process from firms. 

Mr. DUFFY. Do you have plans to collect consumer information 

in the future? 

Mr. BERNER. Congressman, consumer data are not our focus in 

the Office— 

15 

Mr. DUFFY. That is not my question. Do you have plans to collect— 

Mr. BERNER. We have no current plans to collect any consumer 

data. 

Mr. DUFFY. And in regard to the universal mortgage identifier, 

are you going to be collecting mortgage information? I know you 

are working with the CFPB on this. 

Mr. BERNER. Actually, Congressman, our role in the universal 

mortgage identifier was to provide conceptual information. We produced a concept paper, which is a paper on our Web site. And the 

purpose of that was to articulate the standards and the protocols 

that would be used in a universal mortgage identifier. Mortgage 

data would be collected by the primary regulator for housing finance, for example. 

Mr. DUFFY. To be clear, you are just going to set the standards? 

You are not going to be involved in the collection of data? 

Mr. BERNER. We have no current plans to collect any mortgage 

data. 

Mr. DUFFY. Okay. But you are working on the universal mortgage identifier to be used by the CFPB. Is that your testimony? 

Mr. BERNER. My testimony is that we are using—we are working 

on the universal mortgage identifier conceptually to assist the 

CFPB, to assist the FHFA, and the Council in general. 

Mr. DUFFY. I just want to be clear—other agencies are collecting 

the consumer information, which we are aware of, we have talked 

to the CFPB about this. 

Mr. BERNER. Right. 

Mr. DUFFY. But not yours? 

Mr. BERNER. That is correct. 

Mr. DUFFY. Okay. I yield back. 

Chairman MCHENRY. I thank my colleague. 

And I will now recognize the ranking member for 5 minutes. 

Mr. GREEN. Mr. Chairman, I ask unanimous consent to reserve 

my time. 

Chairman MCHENRY. Without objection. The gentleman will reserve his time. 

We will now go to my colleague from Missouri, Mrs. Wagner. 

Mrs. WAGNER. Thank you, Mr. Chairman. 

Director Berner, did the OFR originally plan on releasing its 

asset management report to the public? 

Mr. BERNER. Congresswoman, when we got the request from the 

Council to prepare our report, it was actually to prepare to study 

the asset management industry. Subsequently, we believed in the 

interest of transparency and accountability. 

Mrs. WAGNER. That is a yes-or-no question. Did you originally 

plan on releasing this report? 

Mr. BERNER. We always want to be transparent and accountable 

and publishing the report on our Web site is one piece of evidence 

of that. 

Mrs. WAGNER. The OFR spent about 18 months working on the 

asset management report; is that correct? 

Mr. BERNER. Actually, Congresswoman, the Council, starting 

with a process in the interagency working group on the asset management industry, started working on looking at the asset manageVerDate Nov 24 2008 12:13 Aug 26, 2014 Jkt 088525 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\88525.TXT TERRI
16 

ment industry even before that. So, our work is a continuation of 

that work. 

Mrs. WAGNER. During the time, did the OFR make it clear to 

asset managers that the report would be made available to the 

public? 

Mr. BERNER. I’m sorry. Could you repeat the question? 

Mrs. WAGNER. Did the OFR make it clear to asset managers that 

the report would be made available to the public? 

Mr. BERNER. We said that decision was up to the Council. We 

presented our work to the Council, and we asked the Council if 

they would like to publish the report. They said yes, and we 

agreed. 

Mrs. WAGNER. I am going to go back one more time. Did you 

originally plan on releasing the asset management report to the 

public? 

Mr. BERNER. Congresswoman, the report was requested, the 

study was requested by the Council. So the— 

Mrs. WAGNER. Yes-or-no answer. 

Mr. BERNER. Any decision— 

Mrs. WAGNER. Was it originally planned that you were going to 

release this management report? Asset management report? 

Mr. BERNER. Congresswoman, any decision on that score was 

really, since this was something requested by the Council, was the 

Council’s decision. 

Mrs. WAGNER. Taking back my time, exactly when did OFR decide to make the asset management report publicly available? 

When? 

Mr. BERNER. The OFR decided after we talked to the Council and 

the Council agreed to make the report public. 

Mrs. WAGNER. Can you provide us with a date or at least a specific month when that decision was made? 

Mr. BERNER. I believe it was in early September, about 3 weeks 

before the report was released. 

Mrs. WAGNER. In early September, 3 weeks, is when the decision 

was made to make this public? 

Mr. BERNER. The decision was made by the Council to release 

the report and make it public. The Council had to review the report 

before they made that decision. We presented the report to the 

Council. It was the Council’s decision. And they made the decision 

to— 

Mrs. WAGNER. One more time: Did asset managers know that 

this report would be made available to the public? 

Mr. BERNER. When we engaged with asset managers, we told 

them that all of our work would be transparent and open and made 

available to the public at an appropriate time. 

Mrs. WAGNER. Dr. Berner, last week, before the Senate Banking 

Committee, you said of the asset management report, ‘‘We engaged 

the SEC almost from the start because they are the primary regulator for most of these companies and they had the expertise long 

acquired to look at these companies.’’ 

But as you know, the SEC took the absolutely unprecedented 

step of opening up the OFR report to public comment. Why 

shouldn’t Congress interpret this as a sign that there was very little collaboration or agreement between the OFR and the SEC? 

17 

Mr. BERNER. Because, Congresswoman, there was robust and 

longstanding collaboration between the OFR and the SEC, indeed, 

between the OFR and all members of the Financial Stability Oversight Council. 

Mrs. WAGNER. Why would the asset management industry and 

some financial reform advocates submit dozens of long comment 

letters to the SEC if they believed that their input was included 

in the asset management report? 

Mr. BERNER. Congresswoman, I can’t speak for them. I can only 

speak to the fact that we have every interest in being, as I indicated, transparent and accountable. That is precisely why we posted the report on our Web site for public review. Understand that 

the report was produced in the sense that we are a research and 

data organization. Our job is to inform the Council. We put the report on our Web site fully expecting— 

Mrs. WAGNER. That is great. I appreciate that, and I really appreciate your trying to work towards transparency. And in that 

vein, will you commit to providing this committee, in writing, a 

record of all the meetings that you or OFR staff had with the SEC 

and who was present at those meetings, please? 

Mr. BERNER. I am happy to sit down with you and provide that 

information. 

Mrs. WAGNER. Will you provide that to the committee, please? 

Mr. BERNER. Yes, I will. 

Mrs. WAGNER. Thank you. I appreciate that. 

One other thing, since I have a little bit of time left. 

Looking at the report, the report has listed so many incorrect 

things, misrepresentations. It lists an incorrect for Fidelity’s highest level asset manager and its entity and misreports the amount 

of its assets under management, improperly classified Vanguard’s 

structure, and misreported the amount of assets under management for PIMCO. Thankfully, the Securities and Exchange Commission provided stakeholders with an opportunity to point out 

these careless mistakes. Director Berner, don’t you agree that such 

carelessness is just indefensible? 

Mr. BERNER. Congresswoman, there are no errors in our report, 

save for one chart that has been mislabeled, and we have examined 

every comment, every letter, every submission, and every claim of 

mistakes in our report and have found none. 

Mrs. WAGNER. I believe I am out of time. 

Chairman MCHENRY. I ask unanimous consent to submit for the 

record the comments of left-leaning financial activist group Better 

Markets, the quote by Dennis Kelleher that says, ‘‘Rather than focusing on the known systemic risks of the OFR report which materialized just 5 years ago, and which inflicted widespread economic 

wreckage across the country, OFR chooses to take aim at the asset 

management buy side of the financial industry which by comparison presents much lower risk and played no role or virtually no 

role in the most recent financial crash.’’ 

Without objection, that will be ordered. 

And then, we have an additional comment from Vanguard that 

I would submit for the record, which refers to an incorrect classification of Vanguard as a non-deposit trust company member within the OFR report. 

18 

And without objection, we will submit that for the record. 

We will now recognize Mr. Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. And welcome, Director. 

OFR is projecting a staff, including permanent, reimbursable, and 

detailed staff of 282 individuals in Fiscal Year 2015. Could you explain for us the process OFR used to determine that 282 was the 

right number of staff? 

Mr. BERNER. Congressman, we try to outline our workforce plan, 

as we have done and are required to do under the statute for the 

first 5 years of our existence, in a report to Congress. By linking 

our plans for hiring to first our strategy, our strategic goals, we 

outlined those strategic goals first in our strategic framework for 

the first 2 years of our existence, or from 2012 to 2014. It is now 

2014. We are taking a hard look at that because we anticipated 

that being a start-up organization, we would need to revisit that 

strategic plan and the goals that were contained in it. 

We are in the process of doing that, so by 2015 I can report back 

to you and talk about how we have revised those and how they affect the way that we are hiring. The hiring is linked to the goals 

and the way we carry out our mission. And those two things are 

firmly connected. 

Mr. ROTHFUS. OFR is outside the normal appropriations process 

and has a sole principal, yourself. If you or another OFR Director 

decided that OFR required, say, 1,000 or more staff, could Congress 

do anything to stop you? 

Mr. BERNER. Congressman, we are subject to a number of checks 

and balances and substantial oversight. I am required as Director 

to consult with the Chairperson of the Council, who is also the Secretary of the Treasury, on matters of budget, and on hiring and 

compensation. So, there are checks and balances there. Second, our 

budget is published in the President’s budget and so it is made 

public. I think that was referred to earlier today. 

Mr. ROTHFUS. But there is nothing that Congress can do to limit 

the number of folks you would be hiring, or your budget, for that 

matter? 

Mr. BERNER. We are also subject to oversight by the various Inspectors General and by the Government Accountability Office, 

which is an arm of Congress. And, in fact, when I was here 10 

months ago, I testified on a report about transparency and accountability. 

Mr. ROTHFUS. But does that give Congress the authority to set 

a limit on the amount of folks that you can hire? 

Mr. BERNER. There is substantial oversight. 

Mr. ROTHFUS. There is oversight, but there is no limit, is there? 

Mr. BERNER. There is substantial oversight, but we are following 

the statute in the way that we proceed. And again, I have accountability to you as a Member of Congress to report back to you on 

exactly what we are doing and why we are doing it. 

Mr. ROTHFUS. OFR funds itself with assessments on industry 

which are placed in its financial research fund. Dodd-Frank Section 

155(a)(3) allows OFR to request the investment of the portion of 

the financial research fund that is not required to meet the needs 

of the Office. Do you know the current balance of OFR’s investments? 

19 

Mr. BERNER. Congressman, the way that the financial research 

fund is set up, it funds actually not just the Office, but also the 

Secretary of the Financial Stability Oversight Council, certain activities of the FDIC to resolve large complex financial institutions, 

and some other institutions. We build into the process the idea in 

our assessment process which was the subject of a Treasury rule 

that we would collect. Every 6 months, we would collect 6 months 

of operating expenses for those entities and we would collect 12 

months of capital expenditures projected, because capital expenditures, as you are well aware, can fluctuate, and are lumpy and 

hard to predict. And so, we do have a balance. I will get back to 

you with what is— 

Mr. ROTHFUS. I appreciate that. We will follow up with you in 

writing on that. 

Mr. BERNER. —in the fund currently. But that is the reason that 

any funds accumulate. Because when you assess every 6 months, 

you don’t spend the money immediately. 

Mr. ROTHFUS. It is widely acknowledged including by you in your 

annual report that U.S. Treasuries stand apart in terms of their 

creditworthiness in the highly liquid markets in which they trade, 

and that these attributes help tremendously in periods of market 

volatility. 

You have indicated that you are focusing on activities in the 

asset management industry, and in doing so, what consideration is 

being given and what steps are you taking to preserve the deepest, 

most liquid market possible in Treasuries? 

Mr. BERNER. Congressman, in our report on asset management, 

we didn’t really address any aspects of any particular market. 

Rather, we focused on the activities of asset managers. The 

breadth, depth, and liquidity of the Treasury market are obviously 

a great asset to the United States. And you know— 

Mr. ROTHFUS. Have you thought at all about the implications on 

the Treasuries market of your scrutiny of asset managers? 

Mr. BERNER. We haven’t linked those two things together directly, Congressman. But in our annual report, we do have a research study on financial market liquidity, particularly what is 

called market liquidity, or the ability to transact. And that study 

may inform some aspects of trading in the Treasury market. 

Mr. ROTHFUS. I thank the chairman. 

Chairman MCHENRY. We will now recognize my colleague from 

Kentucky, Mr. Barr, for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. 

And thank you, Mr. Berner, for your testimony today. As you are 

well aware, the GAO in 2012 issued an audit of your agency. That 

audit outlined concerns both of your agency and of the Council. 

And one of those concerns was a lack of transparency. 

I appreciate your testimony today and your commitment to enhancing or improving your reputation as an Office for better transparency. I do have a question related to that and the asset management report that was recently released. If your agency is committed to transparency, why did the Office not allow for public comment prior to releasing the asset management report? 

Mr. BERNER. Congressman, when we do research, we want to 

make it available, and we look at a particular aspect of financial 

20 

markets. We post as soon as it is ready to be posted, ready for public comment on our Web site. Seeking public comment is not something that is part of that process. I would tell you that when we 

do research, and when research is done generally in finance and economics or any other discipline, for that matter, it is common practice to make the research available, to welcome comment on it. 

That is why, in fact, people call papers ‘‘discussion papers’’ or 

‘‘working papers.’’ We have 12 of those on our Web site. The whole 

purpose of doing that is to invite discussion, debate, and to further 

the state of our knowledge by having that discussion and debate. 

Mr. BARR. If you are not incorporating the input from the asset 

managers themselves, how can you have confidence in the accuracy 

of the report? And as a followup, will you commit in the future to 

accepting comments and incorporating those into your reports? 

Mr. BERNER. Congressman, because we didn’t seek public comment the way that people do in rulemaking or the way that was 

done by another agency on this report does not mean we don’t take 

seriously the comments that were made. We have looked at every 

single comment, and we have looked at every single issue that was 

raised in those comments. 

We continue to look at those and we continue to welcome comments on our work and as we work forward, and we think about 

issues related to asset management and financial stability, we are 

taking into consideration those comments as we go forward. 

Mr. BARR. The bottom line is in that case, you did not take into 

consideration those comments because you didn’t make it available 

for public comment prior to putting it out. And according to the 

Treasury press release accompanying OFR’s asset management report release, the Council requested the report in connection with 

the Council’s review of non-bank financial companies, indicating 

that the report would have a direct bearing on future Section 113 

non-bank SIFI designations. 

Will the OFR asset management report that did not take into account the comments from the asset management industry be used 

for purposes of SIFI designations. 

Mr. BERNER. Congressman, as you know, designation is a policy 

choice of the Council, and I can’t predict—I am a non-voting member of the Council, but I can’t predict what the Council will do. Our 

job is to present information to the Council for their information. 

We continue to do that, as I indicated earlier. 

And the Council may ask us for additional research and data in 

the performance of their investigation into non-bank designation. 

I would point out to you, Congressman, that designation is a 

firm-specific tool. We looked at the asset management industry and 

the activities in that industry. We did not look at particular firms. 

So we can’t—you certainly could not use the report by itself as an 

input into the designation process. 

Mr. BARR. Let me just follow up with a point that was made by 

Hester Peirce of the Mercatus Center related to this asset management report and the potential unintended consequences of applying 

bankcentric regulations for asset managers. She wrote, ‘‘Attempting to fit the asset management industry into a bank regulatory 

scheme might have the unintended consequence of further homogVerDate Nov 24 2008 12:13 Aug 26, 2014 Jkt 088525 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\88525.TXT TERRI
21 

enizing the financial sector so that it is less able to meet investors’ 

needs and more vulnerable to financial market shocks.’’ 

Are you concerned that your Office’s asset management report 

may be used to support the case that asset managers should be 

subject to these bankcentric prudential regulation by the Federal 

Reserve? 

Mr. BERNER. Congressman, we didn’t indicate any preference for 

any remedy to any threat that might arise in asset management 

activities in our report, nor have we so indicated. Really, when you 

look at our report, it was designed, again, to inform the Council in 

its deliberations. What the Council chooses to do with that is really 

the Council’s decision. 

I would also add that we highlight on the first page of the report 

that asset managers and their businesses on their activities are 

significantly different in significant ways from those of other financial institutions, as we indicated. 

So as I testified last week, we agree that asset management activities and businesses are quite different from traditional banking 

activities or, for that matter, other activities in the financial markets and in the industry. 

Mr. BARR. Thank you. 

I yield back. 

Chairman MCHENRY. We will now recognize the ranking member, who is last at bat. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the witness again for appearing. 

Mr. Director, do you report to FSOC? Is that correct? 

Mr. BERNER. Congressman, I don’t report to FSOC. I serve the 

needs of the FSOC. But I am accountable to, as dictated by the 

statute, the Chair of the Council, who is the Secretary of the Treasury. 

Mr. GREEN. Thank you for that indication. 

And is it true that you pass on your intelligence to FSOC? 

Mr. BERNER. That is correct, Congressman. 

Mr. GREEN. And is it true that you don’t make policy? 

Mr. BERNER. That is correct. 

Mr. GREEN. You do get involved in some rulemaking for the entity that you work with, but you don’t set policy for FSOC; FSOC determines what the policy is? 

Mr. BERNER. The only rulemaking that we get involved with, and 

we haven’t done that yet, will relate to data collection when and 

if we prosecute the need to collect data from financial firms. But 

so far we haven’t done that. That is in the future. But that is the 

only rulemaking in which we are engaged. Other than that, you are 

absolutely correct, we don’t make policy and we don’t make rules. 

Mr. GREEN. There was some concern about the number of employees as well as the budget. Is it true that you, meaning your 

agency, are a creature of Congress; Congress gave birth to you? 

Mr. BERNER. That is correct, under the statute. 

Mr. GREEN. And there was a gestation period? 

Mr. BERNER. That is absolutely correct. We were, as I testified 

last March when I was here and I noted today, then a startup, still 

a start-up organization. Today, we are standing on our own. And, 

we are delivering on our promise and our mission. 

22 

Mr. GREEN. And is it true that in your world, what the Congress 

giveth, the Congress can take away, blessed be the Congress? 

Mr. BERNER. Absolutely, Congressman. 

Mr. GREEN. Meaning, if the Congress decides it wants you to 

have fewer employees, the same Congress that gave you life can 

also limit your existence? 

Mr. BERNER. Congressman, if Congress decides to change the 

laws, which Congress obviously has the power to do— 

Mr. GREEN. We can change the laws. If we choose to, we can 

eliminate your existence, your very existence. You are a creature 

of Congress, you exist because Congress decided that you should be 

there? 

Mr. BERNER. That is correct. 

Mr. GREEN. So if we want to limit the number of employees, we 

have that within our power? 

Mr. BERNER. That is correct. 

Mr. GREEN. That is, we have conferred upon you the authority 

to do what you are doing and that you cannot do more than we 

have accorded you. Is that a fair statement? 

Mr. BERNER. That is true. 

Mr. GREEN. Now, let’s talk quickly about the LEI. Would you just 

give me a brief overview of what the LEI is contemplated to be and 

how you contemplate getting this up and running, please? 

Mr. BERNER. The LEI is contemplated to be and in fact already 

is a unique identifier that helps us identify parties to financial 

transactions. So it assigns an identifier to the legal entities within 

a company around the world. 

Currently, after only 2 years of existence, really 3 years since the 

LEI was simply a concept on the piece of paper, the LEI is up and 

running on a global basis: 27 countries have been involved; and 

150,000 LEIs have already been issued, and more are coming at a 

rapid clip. 

Nobody is compelled to use the LEI at present. These are all voluntary adherents, because this is so valuable to the industry in improving the quality of the data that they use that they report to 

us and to others, and to make it exactly clear, where their exposures are. 

Back in the crisis, as you know, many people were exposed to 

particular counterparties, and they were not aware of that because 

the names did not indicate that they were exposed to A, B, or C; 

for example, Lehman Brothers. It turns out that had the LEI been 

in use at that time, then they would have known that exposure, 

they would have been better able to evaluate that exposure. Likewise, for regulators, as I indicated. 

It gives us better quality data for researchers. It gives us better 

quality data. So earlier it was asked, when would the project be 

complete. It is like a process of surveillance. It is like a process of 

any other process that is ongoing, it is a journey, not a destination. 

We are already well in train. This process has not reached quite 

steady state yet, but the governance around it and the technology 

around it and the integrity of the process all are nearing completion. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I will yield back. 

23 

Chairman MCHENRY. I thank the ranking member. 

And I misspoke. Mr. Green wasn’t the last at bat. That would be 

Mr. Ellison from Minnesota, who is recognized for 5 minutes. 

Mr. ELLISON. Yes, sir. Thank you, Mr. Chairman. 

And thank you, Ranking Member Green. 

I won’t be long, just a few questions. 

I just want to say that I was in Congress in 2008, and I will 

never forget the frantic calls we were receiving, the difficulty of 

managing the whole financial crisis. 

And, in my opinion, one of the things that we did was we were 

responsive government. We passed the Dodd-Frank Reforming Consumer Protection Act, which created your Office, and I think that 

was a good thing. 

I want to thank you for your public service, and I want to express my appreciation for the work you and your staff are doing. 

You are doing it in a difficult political environment. 

Mr. BERNER. Thank you, Congressman. 

Mr. ELLISON. You bet. 

But I would like to just point out something that I think you are 

doing that I think makes some sense. And so, let me ask you about 

the Universal Mortgage Identifier. 

Can you tell us about the idea behind it? 

Mr. BERNER. Yes, I can. 

The idea behind the Universal Mortgage Identifier is to fill a gap 

in our knowledge. We learned in the financial crisis that despite 

the great volume of mortgage data available, neither regulators nor 

market participants, nor, for that matter, sometimes the people 

who originated the loans could link first liens to second liens. So 

they couldn’t assess where the problems might lie. If you want to 

think about the sum of those two things as representing the debt 

on a piece of property, you couldn’t identify those things. 

As you know, in the depths of the crisis, when people were trying 

to refinance their mortgages, they were not empowered to do so by 

virtue of the fact that some of the second lienholders were reluctant to let them do that to refinance their first lien. So there were 

efforts and steps taken to combine them, to refinance them as a 

package and so on. But the lack of information made that process 

much more difficult, much more complicated. 

This proposal arose out of those difficulties, and it is designed to 

provide on a secure basis, without identifying personally identifiable information attached to the mortgage, either first or second 

lien or other characteristics, the loan from cradle to grave, as I indicated, and any other liens that may be linked to it so that regulators have better information. Mortgage originators, mortgage 

servicers, and investors who invest in securitized mortgages all will 

have much better information about the mortgages that are the underlying collateral in those investments. 

Mr. ELLISON. It is a good idea. And in my own district—we have 

more than 35,000 foreclosures in Hennepin County, in the district 

I represent in Minnesota, and between 2007 and 2014, thousands 

more homes in delinquency, and finding out who owns the property 

can be a nightmare. 

24 

I think it is a good idea, and I applaud your recommendation, 

and I hope that you are staying in touch with us to help bring it 

into reality because I think it is an idea with a lot of merit. 

I would like to ask you about a particular area of research that 

you might consider. So I am glad that the Office of Financial Research partnered with the National Science Foundation to sponsor 

research. It is important. 

I have a question on your first grant, the one focused on the real 

threat from high-speed trading in the financial system. We have 

seen flash crashes. You might open the paper or look around and 

see these things happen from time to time and cause a lot of trouble. 

Do you know if the research will include a comparison between 

the impact and risk of high-speed trading of nations with and without a financial transaction tax? 

Because I am curious to know if these financial transaction taxes 

actually have the effect of slowing high-frequency trading? 

And I am not asking you to opine an opinion. Of course, I would 

welcome it if you do. But, really, I am asking: Is this a research 

area that might be fruitful? 

Mr. BERNER. Let me answer your specific question, Congressman. 

The grant is funding research using U.S. domestic data. 

Mr. ELLISON. Okay. 

Mr. BERNER. It may and should yield insights into market stability, working with large data sets in the area of computing that 

needs to be undertaken, but tax policy is not one of the factors that 

the researchers on this grant are considering. 

Mr. ELLISON. Okay. 

Mr. BERNER. You raise a good question, though, and it is something that perhaps we could sit down with you and your staff and 

discuss. 

Mr. ELLISON. We would be more than happy to do that. 

So, that yellow light means I have to hurry up, but I just want 

to say that I am glad the report addressed the swaps market. 

These $400 trillion markets were unregulated until Dodd-Frank. 

Swaps markets contributed to the collapse of AIG and others, 

which worsened the financial crisis. 

I am out of time, but I just want to know as I wrap up—and I 

will get your answer perhaps in writing— 

Chairman MCHENRY. Yes. That would be great. 

Mr. ELLISON. Okay. Thank you. 

So, we would like to talk to you about swaps at a better time 

when there is more time. 

Mr. BERNER. I would be happy to sit down and talk to you about 

the work that we are doing in collaboration with the CFTC and, 

by extension, with the SEC on making sure that the data we collect 

from swap data repositories and trade repositories has the highest 

integrity and can be used for policy purposes, monitoring purposes 

and research purposes. 

Mr. ELLISON. Thank you, sir. 

Chairman MCHENRY. I am not too familiar with the rules of 

baseball or the practice of baseball, but last at bat, then last at bat, 

25 

and now I might actually mean it with our colleague from Maryland who just arrived. 

Mr. Delaney is recognized for 5 minutes. Perhaps that means 

that—what is the batting order where you are batting cleanup? 

That actually might be you, Mr. Green, with the order of things. 

But Mr. Delaney is recognized for 5 minutes. 

Mr. DELANEY. Thank you, Mr. Chairman. 

And thank you, Director Berner, for joining us here today. I 

apologize for being late. 

But I did have one question about asset managers. And before 

I ask my question, I think it is fair for me to share with you my 

views on the issue, which is I don’t believe asset managers should 

be deemed systemically important for a whole variety of reasons. 

And I understand that you are here in your capacity as heading 

up the research component of this analysis; so, I want to make sure 

my question is narrowly framed in that regard. 

But I noticed in the report you identified certain vulnerabilities 

with the asset management industry, or potential vulnerabilities 

that the asset management industry poses, and I was wondering— 

because, in my experience, asset managers, particularly the large 

ones, have hundreds and, in many cases, potentially thousands of 

different funds that they manage either on a discretionary basis or 

in different kind of structures with their investors, and the investors are different in profile. Some are long term in their orientation; some are short term in their orientation. Some have significant limits of redemptions; some have very little limits of redemptions. Some employ leverage; some don’t. Some are designed to be 

long in the market; some are designed to be short in the market. 

Some are designed to be distressed in orientation, et cetera. 

And it seems to me, when you think about the asset management 

industry, you have to almost disaggregate each one of those funds 

individually and almost make a determination if a fund itself is 

systemically important as opposed to the firm’s—firmwide, because 

my sense is the underlying activities of all these funds at a minimum probably cancel each other out, or in many ways the funds 

are—asset managers are inherently hedged because they have all 

kinds of funds doing different things with different types of investors. 

And it just—to say that the asset management industry presents 

vulnerabilities, it is almost like saying the market presents 

vulnerabilities; in other words, it is a little circular, because, in 

fact, these big firms represent the whole of the market. And to observe that they—markets do panic. That is a vulnerability, a psychological vulnerability, and that just is human nature, and it is 

still reflected in markets. And so to almost deem asset managers 

systemically important is almost like saying the market is systemically important, which is not a very productive statement. 

And so, I am curious as to how you think about them when you 

come to this conclusion that they have vulnerabilities. Did you, in 

fact, disaggregate them, or did you take into consideration the fact 

that they are structured the way they are as opposed to with one 

balance sheet and one or two sources of liquidity, which is typically 

what you find in banks, being most the obvious example, or other 

balance sheet-oriented lenders? 

26 

Mr. BERNER. Congressman Delaney, I am really glad you asked 

that question because it highlights something that is very important about our study, namely, that instead of focusing on firms, our 

analysis focused on activities as the basic building block for the 

work that we did, and, as a consequence, we don’t focus so much 

on firms as specific activities, which actually is very close to what 

you were just talking about in terms of different funds have different objectives, employ different degrees of leverage and other 

characteristics that are different. 

In fact, a basic conclusion of our report is that the industry and 

activities in which it engages are diverse, the business models of 

asset managers are diverse, the business mix of asset managers is 

diverse. 

And so, that is one of the reasons that we went to visit 10 asset 

managers who themselves represented a spectrum of diversity 

across the industry to learn more about their business mix and 

their business models, how they manage their risk, for example, 

and all those things. 

Our report concluded that activities was the best way to focus on 

the industry, to look at the risks that might be found in those activities rather than in firms. And, consequently, we focused on 

some activities in particular, some where we lacked information before we could come up with a more complete judgment; for example, activities in separately managed accounts— 

Mr. DELANEY. Right. 

Mr. BERNER. —second, in securities lending, and, in particular, 

in the reinvestment of cash collateral in securities lending, which 

is very close to a repo transaction, and the unwind from which 

could look very much like the unwind of a repo transaction; repurchase agreements used by asset managers themselves in certain respects. And so those are some of the things that we identified. 

Mr. DELANEY. I appreciate it. I just want to make one comment 

before you—because we are running out of time here. And I appreciate the response. 

I would just make one suggestion as we think about asset managers. Definitely if you have concentrated banks, and the markets 

behave a certain way, and several banks dominate the banking industry, their behavior will clearly result in different outcomes in 

the market. 

But it would seem to me that it would be interesting just to 

think about asset managers, think about the asset management industry and you—in one case there were several big ones, and, in 

another case, there were no big ones, just small ones. My suspicion 

is that, if you were to model that, the outcomes would be no different in terms of how the markets would behave because, in fact, 

again, they kind of reflect the market. 

But I appreciate your answer. Thank you, sir. 

Mr. BERNER. That is an interesting question, Congressman. I 

welcome the opportunity to talk to you about it further. 

Mr. DELANEY. Great. Thank you. 

Mr. BERNER. Thank you. 

Chairman MCHENRY. I want to thank my colleagues for the questions. 

27 

We will now have an additional round of questions. But by prior 

agreement, I would ask unanimous consent that we have 5 minutes 

for the Majority side and 5 minutes for the Minority side, at which 

point the hearing will end. So for our witness to be aware of that 

is only right and just. Right? 

I will now recognize Mr. Barr of Kentucky for 5 minutes. 

Mr. BARR. Mr. Berner, I appreciate your indulgence for just a 

quick second set of questions here. 

The Dodd-Frank Act, as you are very familiar with this provision, requires you, as the Director of the OFR, to report and testify 

before the Senate Banking Committee and this committee annually, which is what you are doing here today, but statutorily to provide an assessment of the Office of significant financial market developments and potential emerging threats to the financial stability 

of the United States. 

In your annual testimony to the Senate Banking Committee, 

Subcommittee on Economic Policy, I believe last week, you testified 

that, ‘‘when we think about the financial system, it is very hard to 

predict financial crises. In fact, I am not sure we can really predict 

crises.’’ 

I am not suggesting that you are a fortune teller or that your 

staff or the people who work with you can foretell all emerging 

threats, but isn’t this the statutory obligation and responsibility 

with which your Office is charged? Aren’t you supposed to be able 

to do the best you can to identify these emerging threats and predict financial crises? 

Mr. BERNER. Congressman, I am not a lawyer, so I am not going 

to interpret the statute. But my read of my responsibilities is that 

our job is to identify vulnerabilities in the financial system that 

might give rise to, at some point in the future, maybe the immediate future, threats that could create risks of financial stability. 

And so, by identifying those threats, those vulnerabilities and the 

shocks that could expose them, without being able to predict them, 

nonetheless, if we see that the vulnerabilities are there, our job to 

you and our responsibility to you is to identify those, to point those 

out, to point them out as weak spots in the financial system that 

need to be strengthened. Because if we have a stronger financial 

system, then whenever the shock comes, if it does—and, again, I 

don’t think we can predict when that happens—that we will be 

more able to withstand those shocks. 

Mr. BARR. I appreciate that response. 

But I suppose that, as an oversight subcommittee, our responsibility is to make sure that—on behalf of the taxpayer, that your Office, that your agency, is adding value, that you all are actually 

contributing to the financial stability of the United States by notifying the public, warning the public, warning the Congress about 

emerging threats. 

And so, in fulfilling your statutory responsibility here today, 

please specifically identify the emerging threats that you see which 

could potentially lead to a financial crisis. 

Mr. BERNER. Last week, I talked about three such threats. I 

talked about the impact of a—perhaps a sharp and unanticipated 

increase in interest rates or in volatility, given the current market 

setting, given the environment in which we live, where positioning 

28 

in financial markets is not positioned for that. In fact, what we 

have seen lately is a sharp decline over the past few weeks in interest rates, given what is going on in emerging markets. 

But if there is a sharp increase in volatility or in rates, that is 

one threat that we identified both at that hearing last week and, 

also, in our annual report. 

Second, I talked about the vulnerabilities that still remain in 

short-term wholesale funding markets. Those are issues that have 

been partly addressed. Particularly the Federal Reserve and others 

have addressed some of those vulnerabilities in the so-called 

triparty repo market, but we really don’t think that we have addressed all those vulnerabilities. 

That market in particular is still vulnerable to shocks that could 

produce runs in fire sales, which were elements in the recent financial crisis, which could play a role in any future financial crisis. So, 

we need to strengthen that market. Other aspects of short-term 

wholesale funding are important as well. 

And I identified a third risk among the many; that is, 

vulnerabilities that come to us from outside our financial markets, 

but which may exist in the global financial markets. And I think 

we have seen play out in markets—not that I am saying that this 

is currently a real threat to financial stability—the tremors that 

have recently occurred in the emerging markets that— 

Mr. BARR. If I may reclaim my time, I hear your three identified 

potential threats, and what I didn’t hear in those three threats was 

the failure to make certain SIFI designations and that not being 

a potential threat. 

Let me ask you one kind of final question about the role of the 

OFR relative to FSOC. 

In your written testimony, you say: The OFR report—the annual 

report provides an independent assessment of the state of the U.S. 

financial system, although we solicit impact—solicit and incorporate feedback from the Council member agencies and other subject matter experts. And then you all are obviously providing information to the Council. 

It appears to me that is a bit circular. And my question to you 

is: What is it that you all do that cannot be performed by the Council? 

Mr. BERNER. As you indicated, Congressman, we do provide an 

independent view. We are interested in getting feedback not just 

from Council member agencies, but from others in performing that 

analysis and making that assessment. 

We, for example, have a financial research advisory committee, 

an independent group whom we don’t pay, but who comes to us because they are interested in providing us with advice. 

So we are interested in making sure that, when we make our 

judgments about where the threats to financial stability are, that 

they are based on facts, that they are based on solid analysis. That 

is the counsel that we seek from outside, but the judgments are 

ours. 

Mr. BARR. Thank you for your testimony. 

I yield back. 

Chairman MCHENRY. We will now recognize the ranking member 

for the final word. 

29 

Mr. GREEN. Thank you, Mr. Chairman. 

And, again, I thank you, Mr. Director. 

With reference to a statement from your report indicating that 

the financial system is stronger today, yet there are still some concerns that have to be addressed, the strength of which you speak, 

is that, in part, related to Dodd-Frank? And, if so, can you give 

some indication as to how Dodd-Frank has had a positive impact 

on the financial system with reference to its stability? 

Mr. BERNER. Congressman, yes, absolutely it is related to some 

of the things that were mandated in Dodd-Frank. I would point to 

the regulation of the derivatives markets which were previously 

not subject to the kind of regulation that they are today. 

Transparency in those markets is essential, and Dodd-Frank 

mandated several things that had to be done, such as clearing of 

derivatives through a variety of mechanisms that would make 

those markets more transparent, that would improve what is called 

price discovery in those markets. 

So the oversight in the derivatives markets, which amplified the 

effects of the financial crisis when they occurred, is a major accomplishment. 

More fundamentally, I think that Dodd-Frank obviously is consistent with the kinds of increases in capital requirements, the proposed increases in liquidity requirements for a financial institution, 

and last, but not least, the creation of the Financial Stability Oversight Council so that regulators across the financial system could 

share their insights, could collaborate on implementing the things 

that were mandated by Dodd-Frank, so that they can come together in a coherent way to make sure that all those rules that 

came out of the implementation were consistent with each other. 

Mr. GREEN. I thank you for your testimony. 

And, Mr. Chairman, I will yield back my time such that the witness may be excused. 

Chairman MCHENRY. I thank the ranking member. And I want 

to thank my colleagues on the panel for their bipartisan note. 

Director Berner, I want to thank you for your responsiveness, 

and that is noted and appreciated. 

I certainly appreciate your willingness to have the open forum on 

the asset manager report, to respond to the inadequacies that I 

outlined in your response to my letter, as well as your response to 

Carolyn Maloney and Ann Wagner’s requests as well. I certainly 

appreciate that, and I thank you so much for your testimony. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

And without objection, this hearing is adjourned. 

[Whereupon, at 4:39 p.m., the hearing was adjourned.] 

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