OFFICE OF FINANCIAL RESEARCH

ANNUAL REPORT

TO CONGRESS 2016
ii OFR 2016 Annual Report to Congress
 Summary

FROM THE DIRECTOR

I am pleased to present this 2016 Annual Report to Congress, our fifth annual 

report. Like the previous four, this report fulfills our statutory requirements to 

assess the U.S. financial system, including potential threats to financial stability; 

document our progress in meeting our mission; and report on key research 

findings.

Our overall risk assessment is unchanged from last year. Threats to financial stability remain in 

a medium range, but the sources of those threats have shifted as disruptions have affected the 

global economy and the U.S. financial system has evolved.

We assess threats by weighing vulnerabilities in the financial system against its resilience. We 

judge that the system’s resilience has improved over the past year, even as new threats have 

arisen.

As we did last year, we are reporting to Congress and the public in two installments. Our 2016 

Financial Stability Report focuses exclusively on threat assessment and monitoring. The stability 

report complements the annual report with a deeper analytical assessment of threats to financial 

stability.

As in the past, this year's annual report covers the three requirements in the statute. Its three 

chapters contain:

■	 a summary of the financial stability threats discussed in the financial stability report;

■	 key findings and insights, including a discussion of the programmatic framework for achieving 

our data-and-research agenda; and 

■	 the status of our efforts to meet our mission, including our support of the Financial Stability 

Oversight Council (FSOC) and its member agencies.

The report closes with a description of our priorities for fiscal year (FY) 2017 and beyond.

Taken together, I hope the two reports will help us communicate with a wide range of stakeholders while ensuring that we are transparent and accountable in our work and in the ways we 

pursue it. These two reports, like those we published previously, reflect the views of the OFR. 

However, we continue to benefit from collaboration with the member organizations of the FSOC.

Collaboration is a critical ingredient in fostering what we call a virtual research-and-data community — one that extends the reach and impact of what our staff can accomplish alone. This collaboration includes interaction with our Financial Research Advisory Committee and our domestic 

and global counterparts. 
In FY 2016, the OFR made further progress toward meeting its mission. In particular, we made 

significant progress on our mandates to improve the scope, quality, and accessibility of financial 

data. These data mandates are what make the OFR unique; they are designed to provide the 

high-quality, comprehensive data essential for good decisionmaking. 

For example, we completed important pilot projects to expand the scope of data describing 

bilateral repurchase agreements and securities lending transactions, and we plan permanent 

collections for these same data in the coming year and beyond. Likewise, we report substantial 

progress in data standards and data catalogs — critical tools to promote improved data quality 

and accessibility. 

Our research mission is also critical. First, it is needed to fulfill our data mandates. To identify, 

prioritize, and fill data gaps with high-quality financial information, we first need to frame how we 

assess and monitor threats to financial stability.

In addition, our mandates put us in a unique position to look across the financial system to 

complement the work of others in the FSOC by filling gaps in analysis, developing new tools, and 

assessing resilience.

Finally, as an office that does not make policy, we have an objective perspective to fulfill our 

mandates to study financial stability policies, including evaluating and reporting on stress tests. 

We report here the significant progress we’ve made in meeting these analytical aspects of our 

mission.

To communicate our agenda, be transparent and accountable to the public, and advance and 

sustain the pursuit of our mission in coming years, we continue to build on our programmatic 

approach to our work. This approach identifies core areas of concentration that align our priorities with our mission.

Our eight initial programs focus on improving the accessibility, quality, and scope of financial 

data; assessing and monitoring vulnerabilities in the financial system; evaluating policies intended 

to mitigate financial stability risks; and developing tools to monitor emerging risks. We report 

here on the progress we have made in these areas. 

During nearly four years as Director of the OFR, I have had the honor of leading an extraordinary 

group of public servants, united in their passion for our mission and their shared commitment 

to succeed. I am extraordinarily proud of the OFR team and grateful for the privilege of working 

with this diverse group of dedicated and talented professionals.

In the coming year, we will keep that passion burning and strive as “One OFR” to build on the 

progress we have achieved together. This year’s accomplishments demonstrate that teamwork 

brings success, and we will continue to work together to produce outstanding results.

Richard Berner

Director, Office of Financial Research
CONTENTS

FROM THE DIRECTOR

SUMMARY 1

ANALYSIS

Analysis of Threats to the Financial Stability 

of the United States 5

Key Threats to Financial Stability 6 

Financial Stability Monitor 15 

RESEARCH

Key Findings from the OFR’s Research and Analysis 

of the Financial System 21

Data Findings and Insights 21 

Research Findings and Insights 26

Shadow Banking 29 

OFR Programs 31 

MISSION

Status of the Efforts of the OFR in Meeting 

Its Mission 57

Support of the FSOC and Its Member Agencies 58 

Our Programmatic Approach 59

Collaboration 60

Transparency and Accountability 65

Strategy and Performance 66

Human Resources 67

Information Technology 71

LOOKING AHEAD 75
vi OFR 2016 Annual Report to Congress

Central Counterparties Data Accessibility Data 

Quality Data Scope Market Structure Monitors 

Risks in Financial Institutions Stress Tests Data 

Accessibility Data Quality Data Scope Market 

Structure Monitors Risks in Financial Institutions 

Stress Tests Central Counterparties Data Quality 

Central Counterparties Data Quality Data Scope 

Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties 

Data Accessibility Data Scope Market Structure 

Monitors Risks in Financial Institutions Stress 

Tests Central Counterparties Data Accessibility 

Data Quality Data Scope Market Structure 

Monitors Risks in Financial Institutions Stress Tests 

Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties 

Data Accessibility Data Quality Market Structure 

Monitors Risks in Financial Institutions Stress Tests 

Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties 

Data Accessibility Data Scope Market Structure 

Monitors Risks in Risks in Financial Institutions 

Stress Tests Central Counterparties Data Quality 

Data Scope Market Structure Monitors Risks 

in Financial Institutions Stress Tests Central 

Counterparties Data Accessibility Data Scope 

Market Structure Monitors Risks in Financial 

Institutions Stress Tests 

ounterparties Data 

ibility Data Quality 

e Market Structure 

rs Risks in Financial 

tutions Stress Tests 

a Accessibility Data 

Data Scope Market 

 Monitors Risks in 

l Institutions Stress 

ntral Counterparties 

ata Quality Central 

ounterparties Data 

Data Scope Market 

 Monitors Risks in 

l Institutions Stress 

ntral Counterparties 

a Accessibility Data 

e Market Structure 

rs Risks in Financial 

tutions Stress Tests 

ounterparties Data 

ibility Data Quality 

e Market Structure 

rs Risks in Financial 

tutions Stress Tests 

ounterparties Data 

sibility Data Scope 

Structure Monitors 

Financial Institutions 

Stress Tests Central 
 Summary 1

SUMMARY

1 

2016 Annual Report to Congress

The Office of Financial Research (OFR) 2016 Annual Report 

to Congress takes the same approach as our report last year. 

This report meets the statutory requirement to prepare and 

submit a report to Congress within 120 days after the end 

of each fiscal year to assess the state of the United States 

financial system.

The main chapters contain the required content, as 

defined by the Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010:
2 OFR 2016 Annual Report to Congress

1 Analysis of Threats to the Financial 

Stability of the United States

Threats to financial stability are in a medium range. This overall assessment has not changed since our report last year, but global events 

and the evolution of the financial system have shifted the underlying 

factors.

This chapter discusses four themes in our assessment, the interplay 

among them, and seven threats that apply to them. The chapter also 

weighs our assessment against the resilience of the financial system 

and describes our latest Financial Stability Monitor, which informs our 

assessment along with our research, analysis, and ongoing surveillance.

The resilience of the financial system continues to build after the 

financial crisis of 2007-09, but important vulnerabilities remain and new 

ones have emerged.

The high-level themes are:

1. Disruptions in the 

global economy

2. Risk-taking amid low 

long-term interest 

rates

3. Risks facing U.S. 

financial institutions

4. Challenges in 

improving financial 

data

The specific threats under those 

themes are:

1. Potential spillovers from Europe

2. Credit risks in U.S. nonfinancial 

corporations

3. Cybersecurity incidents 

4. Central counterparties (CCPs) as 

contagion channels

5. Pressure on U.S. life insurance 

companies

6. Systemic footprints of the largest 

U.S. banks

7. Deficiencies in data and data 

management

2 Key Findings from OFR’s Research and 

Analysis of the Financial System

This chapter describes our key findings and insights — what works and 

what does not for the most effective pursuit of our mission — based 

on lessons we have learned since the OFR’s inception in 2010.

We have found that interagency memorandums of understanding are 

essential tools for overcoming obstacles to the appropriate sharing of 

data envisioned in the Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010. These memorandums set the terms for timely 

and appropriate access to nonpublic data. We have signed more 
Summary 3

than 50 of them in the last several years with federal regulators, state 

regulators, overseas regulators, and others.

We are concerned that, although clearing swaps transactions through 

central counterparties reduces the risk from the other party defaulting 

in two-way swap transactions, it also concentrates risk in the CCP itself.

After the key findings and insights, this chapter discusses our eight 

initial programs, which align our priorities with our mission. These 

programs focus on:

■	 improving the accessibility, quality, and scope of financial data;

■	 assessing and monitoring vulnerabilities in the financial system; 

and

■	 evaluating policies intended to mitigate financial stability risks 

and developing tools to monitor emerging risks.

The discussion of the programs includes findings from the OFR briefs 

and working papers in fiscal year 2016 that relate to the programs.

The chapter also describes our work on shadow banking, which is not 

part of any single OFR program but cuts across the programs, and the 

OFR’s role in a public-private project to explore possible alternatives 

to the London Interbank Offered Rate, a set of interest rate benchmarks known as LIBOR.

3 Status of the Efforts of the OFR in Meeting Its 

Mission

This chapter relates how we are working to achieve our mission, 

including our support of the Financial Stability Oversight Council — a 

primary purpose of the OFR under the Dodd-Frank Act — and through 

our wide-ranging collaboration in the United States and internationally. Through this collaboration, we foster a virtual research-and-data 

community to extend the reach and impact of what our staff can 

accomplish alone.

The collaboration includes valuable interaction with our Financial 

Research Advisory Committee, made up of 29 members who are 

experts and practitioners in fields related to the OFR mission. 

This chapter also cites ways we ensure we are transparent and accountable, the governance of our programmatic approach, the continued 

execution of our strategic plan, and our initiatives to nurture and build 

our workforce.

The chapter concludes with a summary of our budget and highlights 

of the information technology infrastructure and safeguards critical to 

our work.
4 OFR 2016 Annual Report to Congress

Central Counterparties Data Accessibility Data Quality 

Data Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Data Accessibility Data Quality 

Data Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties Data 

Quality Central Counterparties Data Quality Data Scope 

Market Structure Monitors Risks in Financial Institutions 

Stress Tests Central Counterparties Data Accessibility 

Data Scope Market Structure Monitors Risks in 

Financial Institutions Stress Tests Central Counterparties 

Data Accessibility Data Quality Data Scope Market 

Structure Monitors Risks in Financial Institutions Stress 

Tests Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties Data 

Accessibility Data Quality Market Structure Monitors 

Risks in Financial Institutions Stress Tests Central 

Counterparties Data Accessibility Data Scope Market 

Structure Monitors Risks in Financial Institutions Stress 

Tests Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Risks in 

Financial Institutions Stress Tests Central Counterparties 
Analysis of Threats to Financial Stability 5

ANALYSIS

Analysis of Threats to the Financial Stability 

of the United States

This chapter discusses the OFR’s assessment of potential 

threats to the financial stability of the United States, weighed 

against our evaluation of resilience in the financial system.

Threats to financial stability remain in a medium 

range. Although the financial system is significantly 

more resilient than during the financial crisis of 

2007-09, some important vulnerabilities persist, and 

new ones have emerged. 

Our financial stability assessment contains four highlevel themes: 

1. Disruptions in the global economy — Potential impacts 

on the United States from shocks in Europe, such as 

weaknesses in European banks, or from emerging market 

economies. 

2. Risk-taking amid low long-term interest rates — Ongoing 

"reaching for yield" behavior could threaten financial 

stability if rates rise.

3. Risks facing U.S. financial institutions — Despite improvements in the resilience of U.S. financial institutions, risks 

remain.

4. Challenges in improving financial data — Continued 

deficiencies in scope, quality, and accessibility of data 

for financial stability assessment, with new challenges 

emerging.
6 OFR 2016 Annual Report to Congress

We unpack those themes into seven key threats:

1. Potential spillovers from Europe 

2. Credit risks in U.S. nonfinancial corporations 

3. Cybersecurity incidents 

4. Central counterparties as contagion channels 

5. Pressure on U.S. life insurance companies 

6. Systemic footprints of the largest U.S. banks 

7. Deficiencies in data and data management 

This chapter analyzes the seven key threats and discusses how 

the thematic interplay among them can originate, transmit, or 

amplify risks to financial stability. 

Finally, we describe the categories of risk that form the framework for our Financial Stability Monitor.

For a deeper analysis and assessment of these threats to 

financial stability and an assessment of current financial system 

vulnerabilities, see the OFR's 2016 Financial Stability Report.

Key Threats to Financial 

Stability

Our overall assessment that threats to financial stability are in a 

medium range has not changed since our report last year, but 

the underlying factors have shifted because of global events 

and the evolution of the financial system.

This section contains an analysis of the seven threats, which we 

chose based on the following criteria: potential impact, probability, immediacy, and readiness of policymakers and market 

participants to deal with them.

We base our overall financial stability assessment of current 

vulnerabilities on an evaluation of the five categories of risk in 

our Financial Stability Monitor, as well as our research, analysis, 

and ongoing surveillance of the financial system.
Analysis of Threats to Financial Stability 7

Potential Spillovers from 

Europe

Policymakers, economists, and market 

participants were already raising 

concerns about weak global growth 

when the United Kingdom voted in June 

to leave the European Union (EU).

Markets recovered quickly from the 

“Brexit” shock, increasing market confidence in the resilience of the global 

financial system and the responses of 

policymakers, but the vote began a 

period of uncertainty that could last for 

years as Brexit details unfold.

Events in Europe will not necessarily 

have an impact on the United States. 

For example, the eurozone, the group 

of countries that use the euro as their 

currency, had a financial crisis from 

2010-12. This crisis did not destabilize 

the U.S. financial system, despite the 

dense network of financial interconnections between the United States and 

Europe.

However, the past does not necessarily 

mean spillovers will not occur in the 

future. The uncertainty and potential 

instability in Europe could be transmitted 

to the United States through at least 

three paths.

First, risks are increasing for some 

large interconnected European banks, 

including ones identified as global 

systemically important banks, or G-SIBs. 

A legacy of nonperforming loans, slow 

growth, and low or negative interest 

rates is straining their profitability (see 

Figure 1).

Second, many European banks also have 

U.S. operations. If they curtailed these 

operations under stress, the U.S. financial 

system could suffer, at least temporarily, 

through reduced availability of credit.

Third, a recession in Europe could 

decrease the demand for U.S. goods 

and services, a potential drag on U.S. 

economic growth. 

Figure 1. Net Income of Select 

European G-SIBs ($ billions)

Q1 2010-13

-10 0 30 60

HSBC

Holdings

BNP Paribas

Barclays

Credit Suisse

Group

Deutsche Bank

Q2 2013-16

Note: G-SIB stands for global systemically important 

bank.

Sources: SNL Financial LC, OFR analysis

The interplay among three of the four 

themes — global economic disruptions, 

persistently low interest rates, and risks 

facing financial institutions — could 

compound risks to financial stability:

■	 The combination of low inflation, soft economic growth, and 

monetary stimulus has pushed 

European interest rates well below 

those in the United States. Investors 

seeking higher returns have pushed 

up the dollar and U.S. bond prices, 

depressing U.S. rates.

■	 Global economic disruptions could 

spill over to heighten vulnerabilities 

in U.S. life insurance companies. 

The top 10 U.S. life insurers have 
8 OFR 2016 Annual Report to Congress

$32 billion of investment exposure 

to Europe, excluding the United 

Kingdom, and much more in indirect 

exposures.

Although direct exposures of U.S. 

life insurers to the EU are small 

relative to their $4 trillion in general 

account assets, U.S. insurers are also 

exposed to European banks through 

derivatives transactions and reinsurance (see Figure 2).

■	 Global disruptions and the threat of 

spillovers from abroad relate to the 

threat from the systemic footprints 

of the largest U.S. banks. Direct 

exposures of U.S. G-SIBs to the EU 

are high — more than $2 trillion on 

and off their balance sheets (see 

Figure 3).

One way to evaluate the potential impact 

of disruptions in the global economy, 

including the potential failure of a 

large European bank, is to include such 

disruptions in the scenarios of stress 

tests on large U.S. banks and insurance 

companies.

Credit Risks in U.S. 

Nonfinancial Corporations

In our report last year, we cited the 

threat from high levels of debt among 

nonfinancial companies. This debt has 

continued to grow at a rapid rate since 

our report last year. In fact, the ratio of 

debt to gross domestic product (GDP) 

for these companies is near an all-time 

high, growing at a much faster rate than 

debt levels among financial businesses 

and households (see Figure 4).

Figure 2. Top 10 U.S. Life Insurers’ Exposure to the European 

Union ($ billions)

Derivatives

Investments

Reinsurance

0 20 40 60 80 100

MetLife

New York Life

John Hancock

Ameriprise

MassMutual

Jackson National

Lincoln

Voya

Transamerica

Athene

Note: Data as of Dec. 31, 2015. United Kingdom not included.

Sources: SNL Financial LC, OFR analysis

Figure 3. Total Exposures of U.S. G-SIBs to the European 

Union ($ billions)

0 200 400 600 800 1000

On-balance-sheet

$1.38 

trillion

Off-balance-sheet

$1.21 

trillion

Cross-border

claims

Claims on local

residents

Fair value

of derivatives

Unused

commitments

Guarantees

Credit derivatives

sold

Note: Data as of June 30, 2016. G-SIB stands for global systemically important bank. 

Claims are on an ultimate risk basis and include the reallocation of claims such as risk 

transfers. Croatia, Estonia, Latvia, Lithuania, Malta, and Slovenia are not represented.

Sources: Federal Financial Institutions Examination Council, OFR analysis
Analysis of Threats to Financial Stability 9

This escalating debt, fueled in part by 

risk-taking amid low long-term interest 

rates, raises the potential for default and 

losses by investors. The impact of such a 

shock to financial stability would depend 

on the scope of the defaults, potential 

contagion to other markets, and the 

resilience of investors in managing the 

damage. 

U.S. banks, mutual funds, life insurers, 

and pension funds have provided the 

most credit to nonfinancial companies, 

so they are most exposed to the threat 

from potential defaults and shocks to 

confidence (see Figure 5).

In light of the vulnerabilities, stress 

testing of these creditors should include 

scenarios of severe losses in nonfinancial corporate debt, coupled with ripple 

effects from strained liquidity and 

eroded confidence. Such stress testing 

should also include downturns in U.S. 

stock markets and commercial real estate 

prices, which have coincided with corporate default cycles in the United States in 

the past.

Figure 4. U.S. Private Sector Debt-to-Gross 

Domestic Product Ratios (Z-scores)

-1

0

1

2

2006 2011 2016

Nonnancial

corporations

Financial 

businesses

Households

Note: Data as of June 30, 2016. Z-score represents distance 

from the first quarter 1990 to second quarter 2016 average, 

expressed in standard deviations. 

Sources: Haver Analytics, OFR analysis

Figure 5. Financial Institutions’ Holdings of U.S. 

Nonfinancial Business Debt ($ trillions) 

Banks and thrifts

Life insurance

companies

Mutual funds

Public and private

pension funds

Securities

Commercial

mortgage

Commercial 

loans 

$3.9 

$2.9 

$1.8

$1.3

Note: Data as of June 31, 2016. Mortgages and commercial and industrial loans 

include debt of nonfinancial businesses, corporate and noncorporate. 

Sources: Haver Analytics, Mortgage Bankers Association, OFR analysis

The ratio of debt to 

GDP among nonfinancial 

companies is now 45 percent, 

near its peak of 46 percent 

during the crisis in 2009 — 

the highest since the data 

series began in 1945.
10 OFR 2016 Annual Report to Congress

Cybersecurity Incidents

Cybersecurity incidents pose a clear 

threat to financial stability because 

financial institutions exist within complex 

networks and rely on electronic transactions that often occur on a rapid, just-intime basis. 

The unique roles that some institutions, 

such as certain central counterparties 

(CCPs), play in the financial system 

magnify the threat. A successful attack 

on their technology systems could 

disrupt payment systems or markets and 

trigger a cascade of losses.

The magnitude of the risk facing financial 

institutions and the firms' resilience in 

responding to this threat are difficult to 

quantify because detailed public data on 

cybersecurity incidents are scarce.

The U.S. government has made substantial progress in sharing information 

about emerging cybersecurity risks, and 

U.S. regulators have introduced tools to 

assess the readiness of financial institutions to meet them. 

Regulators can build on this progress 

by collaborating on a broader approach 

focused on key links among financial 

institutions. This collaboration should 

include regulators and financial firms 

across different parts of the financial 

system. Financial regulators and the 

financial industry would benefit across 

the board from a shared vocabulary, 

strategy, enhanced standards, and 

risk-based approach for combating 

cybersecurity risks.

In FY 2017, the OFR will continue to 

expand its analytical capability and tools 

for assessing such threats.

Categories of Cybersecurity Incidents that Threaten Financial Stability

■	

■	

■	

Lack of substitutability. In many information technology networks that complete transactions or move payments in the financial services industry, a few firms or utilities serve as hubs. 

Examples of these hubs are custodian banks and systems for payment, clearing, settlement, and 

messaging. A cybersecurity incident could heighten concerns about substitutability — the ability 

of the financial system to replace lost services — by damaging a key hub and triggering ripple 

effects through financial institutions and markets.

Loss of confidence. A broad cyber theft targeting customer account information could cause 

a loss of confidence in financial institutions. For example, in South Korea in 2014 cyber thieves 

stole customer names, credit card information, and telephone numbers from a consumer credit 

rating firm. News of the theft triggered a run on the country’s banks and many customers 

canceled their credit cards.

Data integrity. Data integrity is critical. Financial institutions need to recover backup data soon 

after a cybersecurity incident without compounding risks. Data corruption could disrupt such a 

recovery effort.
Analysis of Threats to Financial Stability 11

Central Counterparties as 

Contagion Channels 

After the financial crisis, regulators across 

the world started moving the trading of 

derivatives from two-way, or bilateral, 

swap transactions to central clearing 

through central counterparties (CCPs).

In this country, the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act of 2010 requires central clearing 

of all standardized swaps transactions. 

Central clearing reduces the risk to each 

party in the transaction from the other 

party defaulting, but it also concentrates 

risk in the CCP itself.

CCPs are vulnerable to defaults by 

their clearing members, typically large 

and interconnected banks acting as 

dealers and clearing agents for clients. 

This vulnerability is heightened by 

risk concentration, when a handful of 

large clearing members account for an 

outsized share of exposures. At most 

clearing services the five largest clearing 

members in CCPs account for about half 

of the outstanding exposures, according 

to data that CCPs began to disclose this 

year.

CCPs submit the new data in line with 

international principles embraced by 

regulators. These data contain valuable 

information about the financial condition and risks of CCPs (see Figure 6). 

However, data are reported voluntarily in 

various formats and at different levels of 

detail. More consistent data are needed 

to fully evaluate CCP risks.

Stress testing is a valuable tool for 

evaluating the resilience of CCPs. 

In April 2016, European regulators 

released results of stress tests that 

evaluated scenarios in which counterparties defaulted among multiple CCPs 

simultaneously. 

In the United States, the Securities 

and Exchange Commission (SEC) and 

Commodity Futures Trading Commission 

(CFTC) are the regulators responsible for 

CCP oversight. In November 2016, the 

CFTC released results of a stress test of 

the five largest CCPs registered with the 

commission. The test included the 15 

largest clearing members and their affiliates at each CCP. The stress scenarios for 

the test were based on days of extreme 

volatility, including the day Lehman 

Brothers collapsed during the financial 

crisis and the day after the Brexit vote. 

The stress test showed that the CCPs 

had sufficient funds to withstand losses 

to the two clearing members with the 

biggest exposures in every scenario.

Figure 6. Central Counterparty Resources Available for 

Defaults from the Five Largest Clearing Members ($ billions)

Required customer initial margin $187.74

Required house initial margin $107.04

Total initial margin held less required 

initial margin $54.46

CCP “skin in the game” $0.68

Required prepaid guarantee fund $20.41

Guarantee fund held in excess of 

requirement $1.01

Assessment power $24.70

TOTAL $396.03

Data as of June 30, 2016.

Sources: Individual central counterparty responses to the Committee on Payments 

and Market Infrastructures-International Organization of Securities Commissions 

(CPMI-IOSCO) Principles for Financial Market Infrastructures Quantitative Disclosure 

Standards for Central Counterparties
12 OFR 2016 Annual Report to Congress

Pressure on U.S. Life 

Insurance Companies

U.S. life insurers face an array of threats, 

including downward pressure on 

earnings from low long-term interest 

rates and sensitivity to stock prices.

Life insurers receive premiums from 

customers and invest them to generate 

income for paying claims. Interest rate 

spreads — the difference between rates 

earned and rates required to pay claims 

— are a key component of insurers’ 

earnings. When interest rates fall, actual 

yields from these investments also fall, 

reducing insurers’ interest rate spreads 

(see Figure 7).

Like banks, insurance companies are 

locked into the costs of long-term liabilities, so declining yields from their assets 

reduce their earnings.

Some firms also have growing exposures 

to retirement products — including 

variable annuities and private pension 

obligations — that are sensitive to these 

risks.

Life insurers are interconnected with 

G-SIBs and other financial institutions 

of all sizes, so significant distress at a 

large life insurer could result in contagion, impairing other financial firms and 

markets (see Figure 8). 

The framework for resolving failed U.S. 

insurance companies is designed for 

individual firms and has not been tested 

for multiple large failures.

In addition, the resolution framework 

for a failing insurer relies largely on 

state guarantee funds. If an insurance 

company failed, state guarantee funds 

Figure 7. Interest Rate Spread for U.S. Insurer 

Portfolios (percent)

0.0

1.0

2.0

2006 2009 2012 2015

Source: National Association of Insurance Commissioners

Figure 8. Normalized Systemic Risk Measures 

(percent of systemic risk)

Berkshire

Hathaway

AIG

Goldman

Sachs

Morgan

Stanley

Prudential

MetLife

Wells Fargo

Citigroup

Bank of

America

JPMorgan

Chase

0 105 15 20 25

Distress insurance premium

Insurance companies

SRISK

Conditional value-at-risk

Note: Data as of June 30, 2016. SRISK is a widely cited measure of a 

financial firm's contribution to systemic risk, and is an estimate of the 

capital a firm would need in a severe market decline. Distress insurance 

premium is the hypothetical contribution a financial institution would 

make to an "insurance premium" that would protect the whole financial 

system from distress.

Sources: Bloomberg Finance L.P., Markit Group Ltd., the Volatility 

Laboratory of the NYU Stern Volatility Institute (https://vlab.stern.nyu.

edu), OFR analysis
Analysis of Threats to Financial Stability 13

would rely on surviving firms in that state 

to cover shortfalls to policyholders. This 

state-based guarantee fund system has 

not faced an industry-wide solvency 

crisis; past failures have been small and 

limited to individual firms.

Systemic Footprints of the 

Largest U.S. Banks

Reforms after the financial crisis have 

made the largest banks significantly 

more resilient. They require these banks 

to hold more capital as a buffer against 

losses and other shocks and more liquid 

assets to meet sudden demands for 

cash. They also require banks to conduct 

rigorous stress tests.

Although these requirements have 

reduced the likelihood of a large bank 

failing, the potential impact of a large 

bank failure remains substantial. The 

“systemic footprint” of the largest banks 

— their size, complexity, and interconnectedness — constitutes a key threat to 

financial stability.

The eight U.S. banks identified as G-SIBs 

hold almost three-fourths of all assets of 

U.S. bank holding companies. 

Substitutability — the ability of the financial system to replace services previously 

provided by a firm that has failed or 

otherwise left a line of business — is also 

a concern. 

In July, one of the largest U.S. banks 

announced it is closing its government 

securities settlement business by the end 

of 2017. This decision could concentrate 

this type of business in another firm. 

More concentration could raise financial 

stability concerns.

Figure 9. Components of U.S. G-SIBs’ 

Operating Income ($ billions)

2010

Net interest income

$219

Loan loss provisions

-$86

Other income

$263

Noninterest expenses

-$314

Pretax operating

income

$135

$81

2015

Note: Other income includes noninterest income and 

securities gains or losses. G-SIB stands for global systemically important bank. 

Sources: SNL Financial LC, OFR analysis

U.S. interest rates remain at or near 

historic lows, and rates in other advanced 

economies have fallen below zero. 

Low long-term interest rates promote 

economic expansion, but among large 

banks, the low rates also encourage 

risk-taking because investors make 

increasingly risky investments to increase 

their returns.

Sustained low rates have also combined 

with growing competition from shadow 

banks and other factors to undermine 

profits from the traditional bank services 

of accepting deposits and making loans. 

Shadow banking is the extension of 

credit by nonbank companies or credit 

funded by liabilities susceptible to runs 

because they are payable on demand 

and lack a government backstop.

U.S. G-SIBs’ income from the difference 

between the interest earned on loans 

and the interest paid on deposits fell 

$29 billion from 

2010 to 2015, with 

little offset from 

increases in other 

sources of net 

interest income 

(see Figure 9).

Government 

regulators must 

ensure that 

monitoring and 

stress testing of 

these institutions 

take into account 

the firms' changing 

business models. 

They should 

also continue to 

require G-SIBs to 

improve "living 
14 OFR 2016 Annual Report to Congress

wills," or resolution plans, by simplifying 

their structures, ensuring that critical 

operations could continue even after 

failure, reducing interconnectedness 

and providing more transparency about 

progress in improving their resolution 

planning.

Deficiencies in Data and Data 

Management

During the height of the financial crisis, 

government regulators and financial 

companies’ risk managers lacked timely 

access to the data they needed to assess 

exposures and the health of markets. 

The crisis taught the world that, to 

measure and monitor risks in the financial 

system, regulators, financial institutions, 

researchers, and policymakers need 

financial data that is

■	

■	

■	

■	

■	

■	

accurate,

timely,

high-quality,

comprehensive,

detailed, and

accessible.

The amount of data available to regulators and the public about banks and 

mortgage markets has increased since 

the crisis, but major deficiencies remain.

A fundamental element of the OFR 

mission is to improve financial data to 

support the Financial Stability Oversight 

Council (FSOC) and promote financial stability. Three of the eight core 

programs of the OFR center on threats 

from deficiencies in data and data 

management. These programs focus on 

data accessibility, quality, and scope.

At the OFR, we have taken a particular interest in data related to shadow 

banking. Bank-like activities that take 

place outside the banking industry often 

face less oversight and transparency. 

Since the crisis, the OFR and financial 

regulators have gained more access 

to detailed information about shadow 

banking activities that were largely 

opaque a decade ago, including data on 

hedge funds, money market funds, and 

securities financing transactions.

Projects are underway to expand the 

scope of information about shadow 

banking. The OFR is planning permanent data collections on repurchase 

agreements and securities lending — 

important sources of short-term funding 

in the financial industry.

Regulators from around the world 

are also collaborating on initiatives to 

improve data quality. Following recommendations by the Group of 20 (G-20) 

for greater transparency of derivatives 

markets, its member nations are working 

through the Committee on Payments 

and Market Infrastructures-International 

Organization of Securities Commissions 

(CPMI-IOSCO) to develop global 

standards to make derivatives data more 

consistent, usable, and comparable. The 

G-20 is a forum of finance ministers and 

heads of central banks from 19 countries 

and the EU.

Additional work is taking place through 

the Financial Stability Board on crossborder harmonization of securities 

financing data collections.

These standards initiatives and new data 

collections since the crisis represent 
Analysis of Threats to Financial Stability 15

major progress, but there is more work 

to do. With the quick pace of financial 

innovation, markets change and new 

data needs emerge.

Impediments to data sharing are a 

complication. No single regulator or 

segment of the industry or market has 

all of the data required for a complete 

picture of the financial system and its 

health. That's why sharing — with appropriate safeguards — is so important.

Financial Stability 

Monitor

Our Financial Stability Monitor contains 

the five categories of risk we monitor 

regularly: (1) macroeconomic, (2) market, 

(3) credit, (4) funding and liquidity, and 

(5) contagion. The monitor, a heat map 

of key risk indicators, contributes to our 

overall assessment of financial stability 

(see Figure 10).

Figure 10. OFR Financial Stability Monitor

2015 2016 2015 2016 

Funding Conditions

Market Liquidity

Balance-Sheet Liquidity

Intermediation

Corporate Sector

Households

Financial Sector

Joint Distress

Asset Market Interdependence

Interconnectedness

Less Risk More Risk

Volatility

Interest Rate Risk

Positioning

Asset Valuations

Economic Activity

Sovereign Risk

Ination Uncertainty

External Sector

SUBCATEGORIES

(underlying indicators)

RISK CATEGORY

MACRO

CONTAGION

MARKET

FUNDING/

LIQUIDITY

CREDIT

Duration 

index

Corporate 

bond spreads

Corporate leverage

Nonnancial 

debt-to-GDP (level)

Nonnancial 

debt-to-GDP (change)

Note: Data available as of Oct. 4, 2016. Third quarter 2015 results reflect data not previously available. The colors 

reported here and in past editions are subject to change because of newly reported data, data revisions, or changes in 

the historical range due to new observations. GDP stands for gross domestic product.

Sources: Bloomberg Finance L.P., Haver Analytics, SNL Financial LC, OFR analysis
16 OFR 2016 Annual Report to Congress

Since we developed the monitor in 2013, we have continued to 

refine it. We release updated versions twice each year on our 

website, as well as in each of our annual reports and financial 

stability reports.

Macroeconomic

Low oil prices have pushed inflation lower, but the Federal 

Reserve expects inflation to return to a normal range in coming 

years.

The slow global growth and strong dollar will continue to put 

pressure on the earnings of U.S. companies, which may curtail 

investment and hiring.

The effects of Brexit threaten to spill over into the U.S. 

economy by creating continued uncertainty about European 

cohesion that could prompt businesses to postpone investment as Brexit details unfold.

A related threat is spillover to U.S. financial institutions and 

markets from weaknesses in interconnected EU banks.

Outside of Europe, the risks in emerging markets that we cited 

in our report last year continue to cause concern. These risks 

stem from a buildup of debt since the financial crisis and a 

slowdown in growth that has now lasted for five years.

China is the largest emerging market. Market stress and investment flight from late 2014 to early 2016 have eased in recent 

quarters, leading to more stability in financial markets and the 

Chinese economy.

Vulnerabilities remain. China's corporate debt has surged as 

economic growth has slowed (see Figure 11).

Market

The category of market risk remains elevated and its impact 

cuts across financial stability themes and vulnerabilities. Market 

risk is the risk of financial losses when asset prices change.

Events in Europe, China, and elsewhere overseas have 

contributed to the volatility in market prices in 2016. Anxiety 

about slowing growth in China and globally helped spark a 

major sell-off in risky assets in January 2016. The Brexit vote 

triggered another sell-off in June. In both cases, markets 

rebounded quickly (see Figure 12).

Figure 11. China’s Corporate Debt and 

Real GDP Growth

0

6

12 Real GDP growth

(percent)

Corporate debt

(percentage of GDP)

100

135

170

2005 2007 2009 2011 2013 2015

GDP stands for gross domestic product

Source: Bloomberg Finance L.P.

Figure 12. U.S. Equity Prices (index) 

90

95

100

105

110

Slow China growth

sell-off

Brexit vote

sell-off

Jan

2016

Mar May Jul Sep

Note: S&P 500 indexed to 100 on Dec. 31, 2015.

Sources: Bloomberg Finance L.P., Haver Analytics, OFR 

analysis
Analysis of Threats to Financial Stability 17

Market prices have formed a pattern in recent years of 

occasional bouts of turbulence interrupting periods of calm.

Low long-term interest rates have also come into play by 

supporting economic expansion while stoking risk-taking by 

investors and spurring nonfinancial corporations to pile up 

debt.

Long-term interest rates have been declining along with inflation 

for decades in the United States. They have risen since mid-2016 

but remain near all-time lows. 

For investors in U.S. bonds, low rates have increased risks of 

heavy losses if interest rates rise, even moderately.

In addition, insurance companies are exposed to mounting 

market risks. For example, insurers are offering more retirement products that guarantee policyholders certain returns. 

Some of these products can expose insurers to changes in 

stock markets because the benefits they guarantee to policyholders are typically payable when market values decline below 

agreed-to minimums.

Credit

Credit risk — the risk of borrowers or counterparties not 

meeting their financial obligations — is also elevated because 

of the rising debt of nonfinancial companies.

As discussed earlier, the ratio of U.S. nonfinancial corporate debt to GDP is near an all-time high. Measures of firms’ 

debt-to-earnings and debt-to-assets are also high.

“Covenant lite” loans, which lack strict legal covenants, have 

become much more prevalent and now account for two-thirds 

of leveraged loans to corporations — loans to companies 

or individuals already carrying significant loads of debt (see 

Figure 13). Such loans pose an elevated risk of default.

Excessive borrowing by households and financial firms was 

a key factor underpinning the financial crisis. Debt in these 

sectors has dropped sharply since the crisis but has risen in 

other parts of the economy.

Among some large hedge funds, the use of borrowed money 

for investments or activities is high (see Figure 14). Much of 

that leverage results from short-term borrowing.

Figure 13. Covenant-Lite Share of 

Leveraged Loans (percent)

Source: Standard and Poor’s Leveraged Commentary & 

Data

Figure 14. Qualifying Hedge Fund 

Leverage Ranking by Gross Fund Assets 

(gross to net assets)

0

35

70

2008 2010 2012 2014 2016

0

5

10

15

20

25

2013 2014 2015 2016

Funds ranked 1-10

Funds ranked 11-50

Funds ranked 51+

Sources: Securities Exchange Commission Form PF, OFR 

analysis
18 OFR 2016 Annual Report to Congress

Funding and Liquidity

Funding and liquidity risks persist in the 

U.S. financial system. These types of risk 

are slow to change. 

Funding liquidity relates to run risk — the 

risk that investors will lose confidence and 

pull their funding from an institution or 

market. Market liquidity relates to the risk 

of fire sales of assets — the risk that market 

participants won’t be able to sell securities 

quickly without pushing down prices.

Liabilities payable on demand and not 

backed by government backstops are 

susceptible to run risk. The volume of 

“runnable” liabilities has decreased since 

the crisis when they were hit by runs 

and fire sales. Such liabilities include 

repurchase agreements, securities loans, 

commercial paper, money market funds, 

and uninsured bank deposits. Post-crisis 

reforms partly account for the decrease 

(see Figure 15). The sharp increase in 

2013 coincides with the end of temporary 

unlimited deposit insurance under the 

Dodd-Frank Act.

Figure 15. Runnable Liabilities in the 

U.S. Financial System (percent of GDP)

0

20

40

60

80

100

2004 2006 2008 2010 2012 2014

Note: Data as of Dec. 31, 2015. GDP stands for gross 

domestic product.

Sources: Federal Reserve Board of Governors, Financial 

Stability Oversight Council, Haver Analytics, OFR analysis

Figure 16. Size, Liquidity, and Concentration of U.S. OpenEnded Funds in Select Asset Classes ($ billions)

Alternative

$173

Commodities

$24

Bank loan $91

Corporate bond $84

High-yield bond 

$258

Ination-protected 

bond $93

World and emerging 

market bond $257

Municipal bond $657

U.S. large 

cap equity

$4,041

40

80

percent

of assets

0

0

25 50 percent of

 cash average

Concentration

Liquidity

Note: Data as of July 31, 2016. Liquidity is defined as the average percentage of cash 

and cash equivalents for all funds in each category. Concentration is defined as the top 

three managers’ share of category assets, in percent. 

Sources: Morningstar, OFR analysis

Open-ended mutual funds are a type 

of fund that may face difficulty paying 

investors on demand during times of 

stress in financial markets. These funds, 

which have no restrictions on the amount 

of shares they can issue, had almost $16 

trillion in assets under management in 

June 2016, nearly double the amount at 

the end of 2008.

This risk is greatest for funds with limited 

buffers of cash and investments in 

high-yield bonds, bank loans, municipal 

bonds, and other illiquid assets that 

cannot be converted quickly to cash. 

During times of market stress, these 

funds could struggle to meet redemption 

demands from investors (see Figure 16).

Concentrations in some asset classes 

with few fund managers may also make 

these markets more vulnerable to stress. 

For example, only three asset management firms manage nearly 40 percent 

of municipal bond funds and bank 

loan funds. The SEC finalized rules in 

October 2016 to require mutual funds 
Analysis of Threats to Financial Stability 19

and exchange-traded funds that redeem 

shares in cash to hold more liquid assets 

so they can accommodate larger-scale 

redemptions.

Contagion

Contagion risk is the risk of stress 

spreading through the financial system 

across markets, institutions, and other 

entities.

At the OFR, our research emphasizes 

finding new ways to measure and assess 

contagion risk.

Three current metrics for gauging 

contagion risk evaluate the contribution 

an individual firm makes to financial 

stability risk, and they can help compare 

risks posed by individual firms. But the 

metrics are less reliable in measuring 

changes in those risks over time and 

tend to rise only when stress hits.

The three metrics jumped for the six 

largest bank holding companies during 

market sell-offs in early 2016, then 

reverted to long-term average levels 

when markets recovered. These risk 

measures generally register lower today 

than during the financial crisis (see 

Figure 17).

The OFR takes another perspective on 

contagion risk by gauging the connectivity of financial institutions. An OFR 

working paper in 2013 proposed such 

a connectivity index for banks (see 

Figure 18). The index measures the 

percentage of a bank’s liabilities held by 

other financial institutions. If a bank with 

a high connectivity rank defaulted, the 

impact could spill over to other financial 

institutions.

Figure 17. Measures of Joint Distress for the Six Largest U.S. 

Bank Holding Companies (Z-scores) 

-2

0

2

4

2008 2010 2012 2014 2016

Distress insurance

premium

SRISK

Conditional value-at-risk

Note: Equal-weighted average. The six large bank holding companies are Bank of 

America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. 

Z-score represents the distance from the average expressed in standard deviations. SRISK 

is a widely cited measure of a financial firm's contribution to systemic risk, and is an 

estimate of the capital a firm would need in a severe market decline. Distress insurance 

premium is the hypothetical contribution a financial institution would make to an "insurance premium" that would protect the whole financial system from distress.

Sources: Bloomberg Finance L.P., Markit Group Ltd., the Volatility Laboratory of the NYU 

Stern Volatility Institute (https://vlab.stern.nyu.edu), OFR analysis

Figure 18. OFR Financial Connectivity Index (percent)

2013

0 5 10 15 20 25

2014

more connected

since 2013

Bank of New York

Mellon

Citigroup

State Street

Goldman Sachs

JPMorgan Chase

Bank of America

Morgan Stanley

Wells Fargo

2015

Note: G-SIB is global systemically important bank. The OFR Financial Connectivity Index 

measures the fraction of a bank’s liabilities held by other financial institutions.

Sources: Federal Reserve Form Y-15, OFR analysis
20 OFR 2016 Annual Report to Congress

Central Counterparties Data Accessibility Data Quality 

Data Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Data Accessibility Data Quality 

Data Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties Data 

Quality Central Counterparties Data Quality Data Scope 

Market Structure Monitors Risks in Financial Institutions 

Stress Tests Central Counterparties Data Accessibility 

Data Scope Market Structure Monitors Risks in 

Financial Institutions Stress Tests Central Counterparties 

Data Accessibility Data Quality Data Scope Market 

Structure Monitors Risks in Financial Institutions Stress 

Tests Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties Data 

Accessibility Data Quality Market Structure Monitors 

Risks in Financial Institutions Stress Tests Central 

Counterparties Data Accessibility Data Scope Market 

Structure Monitors Risks in Financial Institutions Stress 

Tests Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Risks in 

Financial Institutions Stress Tests Central Counterparties 
RESEARCH

Key Findings from Research and Analysis 21

Key Findings from the OFR’s Research and 

Analysis of the Financial System

We have learned a great deal since the OFR’s inception 

in 2010 about what works and what does not for the most 

effective pursuit of the OFR mission. 

This chapter describes findings and insights that arise 

from our work and lead us toward important conclusions. This chapter also describes OFR programs; 

significant work outside of programs; and key OFR 

initiatives, projects, and products.

Under the programs, we discuss the findings in OFR working 

papers and briefs in fiscal year (FY) 2016. All OFR papers are on 

our website at financialresearch.gov.

Data Findings and Insights

The OFR has a unique mandate and broad authority to gather 

financial data from across the financial system, including by 

collaborating with federal financial regulators and collecting 

data directly from financial companies. Under that mandate, 

we have a responsibility to rely on data already submitted to 

authorities before requiring financial companies to submit 

similar information.

We also have a mandate to standardize the types and formats 

of financial data, foster appropriate data sharing, and make 

data accessible while protecting its security.

Indicates 

an OFR 

key finding 

or insight
Of the eight initial programs that closely 

align our work to our mission, three are 

related to financial data. The datarelated findings and insights in this 

section draw from our efforts to improve 

the accessibility, quality, and scope of 

financial data.

Data Accessibility 

At the OFR, we are learning how to 

overcome obstacles to the appropriate data sharing envisioned in the 

Dodd-Frank Act.

We have found that interagency memorandums of 

understanding (MOUs) are 

essential tools for overcoming 

such obstacles by setting the 

terms for timely and approp riate 

access to nonpublic data.

22 OFR 2016 Annual Report to Congress

Examples of OFR Memorandums of 

Understanding

Federal Reserve Share data on triparty repurchase 

agreements

Securities and 

Exchange 

Commission

Share data about hedge funds 

and other private funds that firms 

submit on Form PF

Bank of England

Share information related to 

financial stability, including threats 

and risks, metrics, analysis, data, 

and information on data standards

FSOC and 

more than 30 

state insurance 

commissioners

Share data collected by state 

insurance supervisors on insurance 

activities, including 18 MOUs in 

FY 2016

Financial Industry 

Regulatory 

Authority

Share data about investment 

advisers and transactions in 

corporate bonds and other 

securities

Federal Reserve 

(FY 2016)

Share stress testing data that large 

banks submit on Form Y-14

Share data about financial 

institutions’ exposures in particular 

countries

In the last several years, we have signed 

more than 50 MOUs with federal, state, 

and overseas regulators and others 

to facilitate data sharing that fosters 

research and analysis to promote financial stability.

To streamline the process of developing 

and approving MOUs, we are leading an 

interagency team of representatives from 

FSOC member agencies to develop a set 

of common MOU provisions to decrease 

the time agency attorneys spend negotiating MOU terms.

We will continue to collaborate to 

complete this reference set and facilitate 

its use.

Another important lesson we 

have learned is that metadata repositories are key 

building blocks for making data 

accessible.

Metadata are data about data. By 

building and linking repositories, we 

can develop a common understanding 

among financial regulators about what 

datasets exist and what datasets are 

missing — the data gaps that inhibit 

a fuller grasp of threats to financial 

stability.
Key Findings from Research and Analysis 23

These initiatives are not limited to the 

United States. The European Central 

Bank has expressed interest in sharing 

and linking its metadata. This interest 

reflects a developing international 

consensus that global metadata sharing 

makes metadata more useful in understanding the complex nature of interrelated financial domains and transactions.

During FY 2016, in forums such as the 

Regulatory Data Workshop and the 

FSOC’s Data Committee, U.S. federal 

financial regulators discussed how 

to align efforts to improve metadata 

management and identify best practices 

for defining and using metadata.

FSOC member agencies are recognizing 

that their data management must facilitate information accessibility so authorized users can find needed data and 

gain easy access. For example, search 

tools for accessing data must use search 

terms familiar to end users. 

The OFR will continue to champion 

better metadata use by agencies and 

facilitate collaboration between agencies 

to integrate disparate metadata repositories into one comprehensive tool. 

Data Quality 

The OFR has played a central role in 

the international public-private partnership that developed the Legal Entity 

Identifier, or LEI, which is like a bar 

code for identifying parties in financial 

transactions. Our work on the LEI laid 

the foundation for an array of other 

OFR initiatives on financial data quality 

standards.

The process used to develop 

the global LEI system is a blueprint for public-private collaboration that will be the key to 

success in establishing global 

data standards.

Standards are essential for using, 

comparing, and sharing the data necessary for monitoring the stability of the 

financial system and assessing the 

impact of systemic shocks.

Data standards benefit market participants and regulators by reducing the 

cost of data provision and collection and 

facilitating the exchange, assessment, 

and aggregation of data for analysis and 

risk management.

The financial crisis revealed fundamental 

deficiencies in the ability of market 

participants to manage and analyze 

data. The lack of consistent standards 

prevented institutions from identifying 

and measuring risks building within and 

across business lines.

Shortfalls in data standards have 

lessened some of the benefits of 

reforms after the crisis. For example, the 

Dodd-Frank Act required that data on 

over-the counter derivatives trades be 

reported to swap data repositories, but 

data quality has been low. 

As a result, work is underway — 

including in international forums — to 

harmonize swap data reporting and 

develop standards.

In July 2016, the SEC announced 

its adoption of amendments and 

guidance on regulatory reporting and 

public dissemination of some swap 
transactions. Also in July, CFTC issued a 

new rule on requirements for reporting 

data to swap data repositories. The rule 

goes into effect in late December. 

However, better alignment between U.S. 

regulators is needed. The CFTC and the 

SEC each ask the industry for different 

data about swap transactions. They 

should align their reporting standards 

for settlement methods, valuation 

dates, and notional amounts for a more 

comprehensive view of derivatives 

transactions. 

Another major OFR project on data 

quality involves the creation of a financial instrument reference database, as 

required by the Dodd-Frank Act. 

24 OFR 2016 Annual Report to Congress

The core components of the 

financial instrument reference 

database will help the public 

better understand financial 

instruments. This deeper understanding will promote financial 

stability.

A financial instrument reference 

database is an authoritative source of 

data describing a financial instrument. 

The lack of consistent standards for 

defining financial instruments was a 

factor in preventing institutions from 

assessing and measuring their risks. 

Similarly, regulators and supervisors were 

unable to assess risks comprehensively 

from firm to firm, among firms, or among 

other parts of the financial system. 

The effects trickled down to individual 

investors who lacked the transparency 

to assess the crisis’ impacts on their 

portfolios.

To meet the financial instrument reference database mandate requires collaboration between the private and public 

sectors.

Success in developing data standards 

depends on stakeholder engagement 

and a thorough understanding of the 

industry’s underlying business processes 

and requirements. Without this engagement and understanding, standards may 

be ineffective, with significantly reduced 

potential for widespread adoption.

Public-private partnership is also critical 

when broadening data standards development from the national to the global 

level. Organizations playing key roles 

in international standards development 

include the International Organization 

for Standardization; the Committee on 

Payments and Market InfrastructuresInternational Organization of Securities 

Commissions, known collectively as 

CPMI-IOSCO; and the Global Legal 

Entity Identifier Foundation.

As data standards evolve and business 

requirements change, public-private 

partnerships will continue to support 

financial stability.

Data Scope 

Analysis of threats to financial stability 

requires financial data that are comprehensive and detailed.

Current financial regulatory data collection efforts are fragmented. They also 

may be duplicative and, in many cases, 

depend on expensive and antiquated 

legacy technology. These deficiencies 

hinder efforts to keep pace with market 
Key Findings from Research and Analysis 25

innovations and impede creation of a 

more efficient regulatory environment.

Data mapping is one important tool for 

improving the scope of financial data 

while minimizing reporting burdens on 

the financial industry. 

Figure 19. Detailed Collateral Map

DERIVATIVES DESK

FINANCING DESK

CORPORATE TREASURY

ASSETS LIABILITIES

Hedge 

Funds

Hedge

Funds

Bank/Dealers 

and Clients

Securities 

Borrowed

Reverse 

Repo 

Loans

Deposits

Insured

Uninsured

Securities 

Lending

Payables

Equity and Debt

Unsecured Debt

Long-Term

 Short-Term (CP)

Liquidity

Reserves 

Collateralized

Uncollateralized

Receivables

Collateralized

Uncollateralized Bilateral

CCP

Bank/Dealers 

and Clients

Bilateral

CCP

Margin 

Collateral

Variation

Initial

CASH BORROWERS TYPICAL BANK/DEALER CASH PROVIDERS

Flow of Cash Flow of Securities

Secured 

Funding

Term

Short-Term 

(Repo)

Clearing 

Orgs./

Exchanges

Clearing 

Orgs./

Exchanges

TRADING DESK

Institutional 

Customer

Institutional 

Customer

Inventory 

Owned

Inventory

Short

Exchange 

and Market 

Makers

Depositors

Securities 

Lenders

Long-term 

Borrowers

Bank/ 

Dealers

Bank/Dealers

Asset Managers; 

Sovereign, 

Pension, and 

Money Market 

Funds; Insurance 

Companies

Central 

Counterparty

Securities 

Lending 

Agent

Central 

Counterparty

Triparty 

Agents

PRIME BROKER

Customer 

Payables

Client Short/

Cash Reuseable

Securities 

Customer 

Receivables

Client Leverage

Source: OFR analysis

Data mapping can show how a 

common set of data collected 

once from a specific industry 

participant can serve similar 

needs of several regulators.

An OFR brief and several working papers 

have introduced and analyzed financial maps that inform our work. We are 

already seeing the practical benefits of 

these maps.

For example, a working paper in 2014 

used a funding map to illustrate the 

flow of funding from initial providers 

through banks and dealers to end users. 

The funding map was valuable when we 

planned the interagency data collection 

pilot on repurchase (repo) agreements; 

it will support our future efforts in 
26 OFR 2016 Annual Report to Congress

developing an efficient permanent data 

collection.

In FY 2016, we published a working 

paper introducing a collateral map and a 

brief that brought the funding and collateral maps together with an asset map to 

form a multilayer map (see Figure 19). 

In the future, we could use maps to 

assess the relationship between financial data repositories and transactions. 

A financial data map could describe 

the physical characteristics of the data, 

their boundaries, and the connections 

between them. We would use the information to define classes of metadata in 

the metadata repository.

Research Findings 

and Insights

Our research findings and insights in the 

briefs and working papers we produced 

in FY 2016 stem from our ongoing 

monitoring and analysis of potential 

vulnerabilities that can threaten the 

stability of the financial system. They 

also arise from the research initiatives 

underway and our ongoing evaluation of 

financial stability policies.

Stress Testing

The Dodd-Frank Act requires financial 

companies with more than $10 billion in 

total assets and regulated by a primary 

federal financial regulator to conduct 

annual stress tests. The requirement 

extends to banks and nonbank financial 

firms. 

Stress tests can support the regulation 

of these firms by identifying risks that 

are not fully addressed by standards 

requiring the firms to hold certain levels 

of capital or liquidity to make them more 

resilient.

The tests can also be useful for evaluating risks in financial firms not subject 

to supervision by federal financial 

regulators.

Stress tests could be valuable 

to regulators for probing broad 

vulnerabilities throughout the 

U.S. financial system and could 

be improved by increasing the 

number of scenarios and types 

of shocks.

The OFR has a mandate under the 

Dodd-Frank Act to evaluate and report 

on stress tests, and stress testing is one 

of the OFR’s eight core programs.

Since 2012, the OFR has published 

eight papers on the subject. One paper 

published in 2016 considers how the 

Federal Reserve’s annual stress testing 

— the Comprehensive Capital Analysis 

and Review — evaluates the risk that 

a bank’s counterparties will default. It 

found higher loss concentrations for the 

banking system than for individual firms 

and the potential for large indirect losses 

when a major counterparty defaults.

Regulators could use stress tests to 

analyze current threats to financial 

stability, such as the potential impacts of 

a sharp increase in defaults of nonfinancial firms, paired with sharp drops in 

prices of stocks and commercial real 

estate.
Key Findings from Research and Analysis 27

Stress tests of banks and nonbanks could 

identify critical thresholds of weakness 

and the levels of capital and liquidity 

needed to reduce potential risks to 

financial stability. Such tests should 

be tailored to the business models of 

different types of firms. 

In addition, stress testing could be a 

valuable tool in assessing the resilience 

of central counterparties and insurance 

companies. 

Central Counterparties 

The Dodd-Frank Act requires central 

clearing of all standardized swaps 

transactions. Central counterparties 

assume each side of a swap contract by 

becoming a buyer to every seller and a 

seller to every buyer. This arrangement 

reduces the risk in two-way swap transactions in which each party bears the risk 

of the other party defaulting. 

New public data and stress 

tests in 2016 shed light on the 

potential for a distressed CCP 

to transmit financial instability.

One of the OFR’s eight core programs 

focuses on CCPs. The OFR has published 

four papers on the subject, including one 

in FY 2016. 

Life Insurance Industry 

Vulnerabilities are rising for life insurance 

companies and their potential for impact 

on financial stability.

Sustained low long-term interest rates 

put pressure on life insurers’ earnings 

because life insurers invest the funds that 

clients pay in premiums. When interest 

rates drop, the income that insurers 

derive from these investments decreases 

and the pool of funds available to pay 

claims shrinks.

Potential declines in the value of life 

insurers’ stock holdings and other assets 

could put pressure on their solvency.

Japan’s life insurers faced challenges 

in the late 1990s amid sustained low 

interest rates and stock prices.

In 2014, European regulators conducted 

a stress test of their insurers that 

included a scenario of low long-term 

interest rates. The results showed that 

under this scenario, about a quarter of 

insurers in the EU would have difficulty 

meeting their obligations to policyholders in 8 to 11 years. The scenario 

assumed interest rates well above the 

rates in Europe in 2016. The stress test 

also included a more severe scenario 

that assumed low rates and falling asset 

prices. In that scenario, 44 percent of 

these insurers would not have sufficient 

capital. 

In January 2016, large and medium-sized 

U.S. insurers began submitting to state 

regulators their results from the Own 

Risk and Solvency Assessment. These 

assessments are a good start but need 

to be more robust. For example, the 

tests do not use a consistent set of stress 

scenarios and no template exists for 

reporting test results.

A large shock to all life insurers 

or the failure of a single 

large and highly connected 

life insurer could affect U.S. 

financial stability.
28 OFR 2016 Annual Report to Congress

Some insurance firms are connected 

to global systemically important banks 

(G-SIBs) and other financial firms around 

the world. For example, data show nine 

large U.S. and European banks are direct 

counterparties to about 60 percent of 

U.S. life insurers’ $2 trillion in notional 

derivatives.

Large Banks

Reforms after the financial crisis brought 

new and more rigorous regulatory 

standards for banks. Large banks must 

hold more capital as a buffer against the 

impact of losses and shocks, and they 

must have liquidity readily available to 

meet sudden demands for cash. 

Financial reform also brought a major 

emphasis on bank stress tests. These 

tests, and the actions they have required 

individual companies to take, have 

helped increase the resilience of the U.S. 

banking sector.

G-SIBs’ business models and risk profiles 

are evolving in response to earnings held 

back by low long-term interest rates, 

competition from shadow banks, and 

added regulatory requirements. These 

pressures could spur the banks to seek 

sources of income with higher potential 

returns, but also higher risk.

The largest U.S. banks remain a 

potential source of systemic risk 

due to their size, complexity, 

and interconnectedness. 

Regulators have also criticized U.S. 

G-SIBs’ resolution plans, or living wills. 

The need for credible living wills for the 

largest banks and other financial firms 

designated as systemically important 

remains critical unfinished business for 

financial reform.

Cybersecurity 

Cybersecurity incidents pose a clear 

potential risk to financial stability. The 

magnitude of the risk and the resilience 

of financial institutions in responding to 

these threats are difficult to measure and 

quantify. Detailed public data on cybersecurity incidents are scarce. However, 

cybersecurity risks are a growing source 

of concern for financial institutions.

Cybersecurity incidents can 

pose a broader risk to financial 

stability because financial institutions exist within complex 

networks and rely on electronic 

transactions that often occur on 

a rapid, just-in-time basis.

The U.S. government has made substantial progress in sharing information 

about emerging cybersecurity risks, and 

U.S. regulators have introduced tools to 

assess the readiness of financial institutions to meet them.

Regulators can build on this progress 

by collaborating on a broader approach 

focused on key links among financial 

institutions. This collaboration should 

include regulators and financial firms 

across different parts of the financial 

system. Financial regulators and the 

financial industry would benefit across 

the board from a shared vocabulary, 

strategy, enhanced standards, and 

risk-based approach for combating 

cybersecurity risks.
Shadow Banking

We define shadow banking as the extension 

of credit by nonbank companies, or credit 

funded by liabilities susceptible to runs 

because they are payable on demand and 

lack a government backstop.

Shadow banking is not part of any single OFR 

program but instead cuts across all of our 

programs. 

Decades before the crisis, financial activities began 

migrating to new institutions and markets. In some 

cases, these activities were affiliated with banks but 

were less transparent and not covered by existing 

regulations. One reason the crisis was so devastating was that investors and regulators did not 

recognize the risks this migration created.

Shadow banking is a major provider of financial 

services in the United States. To understand the 

risks these activities pose to financial stability, we 

need to understand the incentives that drive them. 

These inquiries are central to the OFR’s work.

Money Market Funds and Similar 

Funds and Investment Pools

Runs on prime money market funds accelerated the 

financial crisis in September 2008 after the Reserve 

Primary Fund “broke the buck,” falling below a net 

asset value of $1 per share by more than half a cent. 

To curb this risk, a recent SEC rule requires prime 

and tax-exempt money market funds with institutional investors to let their net asset values float 

with the value of underlying assets.

Prime and tax-exempt funds with retail investors 

may continue to offer a stable net asset value; they 

may be sold and redeemed at $1 per share but 

must report the market value of their share prices.

Under the rule, both types of funds must adopt 

restrictions on redemptions and impose “liquidity 

fees,” fees on redemptions that may rise as a 

fund’s liquidity falls below certain levels. However, 

each fund’s board has the power to suspend these 

requirements.

In anticipation of this rule, which took effect on 

Oct. 14, 2016, $1 trillion shifted from prime funds to 

government funds (see Figure 20).

Other funds and pools, some of which report a 

stable net asset value and have no government 

backstop, can also be vulnerable to run risk. These 

vehicles include some short-term investment funds 

OFR Shadow Banking Focus Areas 

■	 Run risks in money market funds and similar 

funds and investment pools

■	 Run risks and fire sale risks in secured 

funding markets, such as repurchase 

agreements and securities lending 

transactions

■	 Credit risks for nonbanks that extend credit

Figure 20. Assets Under Management in Money 

Market Funds ($ trillions)

2015 2016

Prime

Investing 

shift in 

anticipation 

of October 

2016 SEC 

rule

Government

0

1

2

$3

Note: Tax-exempt funds are excluded.

Sources: Securities and Exchange Commission Form N-MFP, OFR 

analysis

Key Findings from Research and Analysis
30 OFR 2016 Annual Report to Congress

Shadow Banking, continued

sponsored by banks, local government investment 

pools, and private liquidity funds.

The OFR recently obtained data that the Office 

of the Comptroller of the Currency collects from 

national banks about their short-term investment 

funds. We also have data that the SEC collects from 

private liquidity funds. Combined, private liquidity 

funds and short-term investment funds had more 

than $500 billion under management at the end of 

June 2016, according to these data. State-regulated 

banks and local government investment pools do 

not report this information.

In July, we launched a U.S. Money Market Fund 

Monitor. Regulators and others can easily explore 

fund information by using this interactive online 

tool, which relies on fund data from the SEC’s Form 

N-MFP.

Secured Funding Markets

Runs and fire sales in secured funding markets 

also amplified the financial crisis. We are working 

with other FSOC agencies to fill data gaps in these 

markets. 

We will soon announce details of our proposed 

permanent bilateral repo data collection, which we 

plan to follow with a securities lending collection.

Nonbank Credit Providers

Before the financial crisis, subprime mortgages 

were packaged together as securities and sold 

to investors. The collapse of the market for these 

mortgage-backed securities was a defining event of 

the financial crisis.

Although asset-backed securities have declined 

by almost $1 trillion since 2011, shadow banking 

remains the major source of credit to U.S. 

businesses and households, providing 38 percent 

of credit, compared with 32 percent provided by 

banks (see Figure 21).

Overall, shadow banking credit has risen more 

than $1.2 trillion since 2011, mostly due to growth 

in mutual funds, hedge funds, and other asset 

managers. 

The SEC’s Form PF shows that total investments by 

hedge funds in loans were $138 billion as of June 

2016. Their total investments in corporate loans and 

fixed-income securities were $662 billion, excluding 

sovereigns. However, Form PF does not identify 

borrowers or provide other information to help 

analyze risks.

Figure 21. Shadow Banking Share of U.S. Credit 

Supply ($ trillions)

U.S. Credit Supply (Q1 2016)

$40.3 trillion

Shadow

banking

$15.1

GSEs

$6.0

Banks

$12.8

ABS

Funds

Other

Federal Reserve

$2.0

Foreign sector

$4.4

0 4 8 12 16

Shadow banking

GSEs

Federal Reserve

Foreign sector

Banks

2016

2011

Mortgage Funds Other

pools and 

ABS issuers

ABS stands for asset-backed securities. GSEs stands for government-sponsored enterprises. "Funds" includes pensions funds, money 

market funds, mutual funds, exchange-traded funds, real estate investments trusts, and private funds. "Other" includes insurance companies, 

finance companies, and broker-dealers.

Sources: Haver Analytics, OFR analysis
Key Findings from Research and Analysis 31

OFR Programs 

In late 2015, we began a major initiative 

that extends from our strategic planning 

process and identifies core areas of 

concentration, or programs, that align 

our priorities with our mission.

Data Programs

The global financial crisis of 2007-09 

reinforced the need to make high-quality 

financial data available for policymaking 

and surveillance. The fragmented regulatory environment, domestically and 

internationally, makes sharing financial 

data essential to seeing broad risks in 

the financial system. 

Financial data must have three attributes 

to be useful for policymakers and market 

participants and to support financial 

measurement, risk management, and 

reporting:

■	 Accessibility. Stakeholders must 

have access to data. Information 

must be securely and appropriately 

shared among stakeholders who 

need it, taking into account privacy 

and confidentiality concerns. 

■	 Quality. Data must be complete, 

accurate, timely, and easily usable 

by stakeholders through different 

systems. Data also must be 

supported by adequate information 

technology.

■	 Scope. Data must cover all financial activities that may pose threats 

to financial stability with sufficient 

detail to facilitate monitoring and 

risk assessment.

OFR Programs Focus on Meeting 

Our Mission 

■	 Improve the accessibility, quality, 

and scope of financial data.

■	 Assess and monitor 

vulnerabilities in the financial 

system.

■	 Evaluate policies intended to 

mitigate financial stability risks 

and developing tools to monitor 

emerging risks.

Data Accessibility

Policymakers, regulators, industry participants, and other data users need 

access to consistent and comparable 

data to understand, monitor, and 

manage macroprudential risks — risks 

that affect financial stability. 

Although regulators need to be able to 

see all information relevant to their areas 

of responsibility, questions remain about 

what data have been collected, who has 

collected data, where data reside, and 

how data can be accessed securely and 

confidentially. These questions continue 

to hinder data sharing among authorities 

and with the financial services industry.

Many financial data are not currently 

shared among regulators, industry 

participants, and the public. Significant 

concerns about sharing include confidentiality and protecting data from security 

breaches.

Other significant impediments to sharing 

financial data include: 
32 OFR 2016 Annual Report to Congress

Data Accessibility Program Objectives

Make data understandable to those who need them.

Provide easy access to the data needed for monitoring, 

analysis, and risk management.

Ensure the ability to share and compare financial data.

Secure financial data to ensure they are kept 

confidential.

Collect data only once to address the many needs of 

all users.

■	

■	

■	

■	

■	

■

■

■

■

Maintaining commercial value 

of proprietary data. Data sold or 

licensed as part of a business have 

commercial value for the owners. 

The value could be diminished if 

unauthorized parties have access to 

the data.

Protecting personally identifiable 

information. Data that include 

personally identifiable information 

are particularly sensitive because 

exposure could reveal the identity of 

individuals.

Securing market-sensitive data. 

If exposed, market-sensitive data 

could cause shifts or volatility 

in financial markets or frustrate 

competitive dynamics that help 

markets function.

Navigating statutory and other 

legal constraints. In the United 

States, the fragmented regulatory 

landscape determines who can 

access certain types of financial 

data. Confidentiality concerns 

are heightened with international 

data sharing because of limited 

cross-border authority to enforce 

agreements, resolve disputes, and 

remedy breaches.

■	 Managing data and information 

security. Security of data and information requires specific types of 

controls for organizations that hold 

data and for organizations that need 

access to data, such as regulatory 

agencies. For agencies that hold 

or seek access to data, security 

controls need to align to ensure that 

information and data security are 

uniform between agencies. 

The OFR has a unique mandate to 

resolve these issues. In pursuing this 

mandate, we work closely with regulatory 

organizations whose missions center on 

other goals. In addition, the OFR is a 

source of expertise in metadata management and other technological, legal, and 

research areas needed to establish data 

sharing infrastructure and best practices.

To address the obstacles that impede 

data sharing and foster an environment 

that allows data to be shared, our data 

accessibility program is building tools 

that encourage wider data access. 

In addition, the program is working 

toward improving memorandums of 

understanding between regulators and 

standardizing data security categories.

Metadata Repository

One of the main objectives of the 

data accessibility program is to build 

an OFR metadata repository and link 

it to counterparts at other regulatory 

agencies.

This approach will position the OFR 

metadata repository as the premier 

catalog of financial data, where users 
Key Findings from Research and Analysis 33

can locate and request access to 

needed financial data for regulation and 

policymaking.

The OFR currently maintains a knowledge catalog that serves as the beginning of a metadata repository. The 

knowledge catalog captures information 

on OFR datasets and its physical library 

assets, such as periodicals and books. 

The knowledge catalog stores metadata 

generated when we bring data into the 

OFR from external sources. We need 

the ability to add new metadata to new 

content types, such as new datasets 

derived from other data. 

Another program objective is to develop 

a data dictionary that ensures internal 

consistency and transparency of the 

metadata and the data that the OFR 

securely brings in, stores, and produces. 

The program team also plans to 

develop a metadata registry as part of 

the OFR metadata repository. Similar 

to library catalogs that register all the 

bibliographic items found in a library, 

metadata registries categorize and 

store information about the items in the 

metadata repository.

The registry must have cross references 

to similar datasets so data users can 

locate, request access to, and integrate 

relevant data from the OFR’s stored data.

Initially, the metadata registry will include 

the data and metadata for the datasets 

the OFR brings in, stores, and produces. 

Later, the registry may be extended to 

include external stakeholder metadata, 

subject to resolution of any licensing or 

other legal requirements.

When the repository is complete, we 

plan to link it to other organizations’ 

metadata repositories, which would 

help authorized stakeholders find data 

elsewhere. For example, we will build on 

the existing Interagency Data Inventory 

and help other organizations link their 

metadata catalogs or create catalogs as 

needed. The current inventory, now on 

the OFR website, catalogs basic information describing data collected by FSOC 

member agencies. Although linked 

metadata repositories will aid stakeholders in locating data, control over the 

access to the data will always remain with 

the custodians who hold the data. 

The ability to link metadata with corresponding data will mean the OFR 

maintains the central library of financial 

data for multiple stakeholders, giving 

authorized users a single, secure place 

to find the source of data. At its most 

advanced stage, the OFR metadata 

repository is expected to facilitate international data sharing among financial 

regulators.

The repository is also useful for 

identifying data gaps to expand the 

scope of useful data — the aim of our 

data scope program. In addition, we plan 

to help stakeholders who need similar 

capabilities by providing expertise, 

lessons learned, and best practices to 

assist in building other repositories. 

Data Security Categorization

Definitions of security controls may 

be different from one organization to 

another. Tracing data handling categories from one entity to another is more 

difficult when no consistent framework exists between the organizations 
34 OFR 2016 Annual Report to Congress

sharing data. For example, the Federal 

Information Security Management Act 

of 2002 applies to U.S. federal agencies, 

but industry participants and foreign 

regulators use other security categories. 

Because custodians of data must ensure 

that data shared will be handled securely, 

such a mismatch can prevent agencies 

and entities from sharing data.

Our data accessibility program will 

develop a single data categorization 

framework to map data sensitivity levels 

to security controls. All organizations 

would be able to map their data 

security categories and controls to this 

framework, no matter which framework 

they had historically used. By mapping to 

this common framework, entities would 

be able to compare their own data 

security categories and controls to those 

of entities seeking access to data. An 

entity could then negotiate data access 

with a clear understanding of how its 

own security concerns would mesh with 

the capabilities of another organization 

seeking to share data. Challenges to Data Quality

■	 Lack of standard terms and 

definitions — a common 

data dictionary — employed 

throughout the financial and 

regulatory sectors

■	 Lack of requirements in 

regulations for using data 

standards, such as the Legal 

Entity Identifier (LEI) and 

the International Securities 

Identification Number

■	 Absence of a free, 

open-source central utility 

for the public to research 

financial instruments and 

conduct risk analysis

Data Quality

Improving the quality of financial data 

and the methods for ensuring data 

quality will make data more usable, 

comparable, and sharable. 

During the financial crisis, the lack of 

consistent standards for identifying financial entities and defining financial instruments hindered firms from assessing and 

measuring risks. Financial regulators and 

supervisors also struggled to assess risks 

in the financial system. 

In addition, the crisis highlighted 

the need to improve the internal risk 

management and reporting capabilities 

of firms. These deficiencies included 

the lack of clear data about the ownership structures of firms and the lack 

of standardized data about over-thecounter derivatives.

The Dodd-Frank Act requires the OFR to 

set standards for the types and formats 

of data the OFR collects for itself and on 

behalf of the FSOC. Under this authority, 

and in consultation with other FSOC 

agencies, we will set standards for the 

types and formats of the OFR permanent 

collection of repo and securities lending 

data.

The Act also calls for the OFR to 

assist member agencies in developing 

standards for the data they collect. The 

OFR has assisted the CFTC through a 

memorandum of understanding to help 

improve data quality in swap data repositories, advised the SEC on swap data, 
Key Findings from Research and Analysis 35

and advised the Consumer Financial 

Protection Bureau on mortgage data 

standards (see Figure 22).

The OFR’s data quality program focuses 

on improving the quality of data available for analysis through application 

and development of data standards, 

providing a common reference for 

industry data and establishing operational excellence in data management.

Some regulators continue to use legacy 

processes that rely on inadequate 

standards or proprietary data definitions. These processes often do not 

allow for effective validation or conformance to structures needed for data 

sharing. Additionally, as financial markets 

continue to evolve, the challenge of 

maintaining data quality will similarly 

evolve for firms and regulators.

Figure 22. Data Standardization Process

Data Standards 

Standards

Organizations

Engagements

Financial Stability

Oversight Council

Collaborations

OFR Data

Collection

Standards

Develop a comprehensive 

data standards 

engagement strategy

Develop framework 

publishing OFR data 

collection standards

Commodity Futures

Trading Commission 

(Swap Data)

Process

Program 

Function

Consumer Financial 

Protection Bureau 

(Mortgage Data)

Securities and Exchange 

Commission (Swap Data)

Project

Partner activity

Source: OFR analysis

The OFR can identify gaps in data quality 

and standards, influence development 

of voluntary data standards by standards 

organizations around the world, and use 

rulemaking authority to require that firms 

adopt consistent standards.

Unlike in other industries, participants in 

the financial services markets and U.S. 

regulatory agencies have been slow to 

adopt best practices for data quality and 

to define and implement consistent data 

standards and formats to support risk 

analysis, management, and reporting. 

Without shared meaning throughout 

systems and databases, the industry 

and the regulatory community will 

continue to face challenges and operational risks because data cannot be well 

understood. 

Work and planning are underway at the 

OFR on several data quality projects.

Financial Instrument Reference 

Database 

No widely adopted, free standard 

currently exists for financial instrument 

identification or encoding terms and 

conditions for broad classes of instruments. Section 154 of the Dodd-Frank 

Act requires the OFR Data Center to 

“prepare and publish, in a manner easily 

accessible to the public ... a financial 

instrument reference database.” 

We have received input from multiple 

sources, including members of the OFR’s 

Financial Research Advisory Committee, 

about developing a financial instrument 

reference database that will serve as a 

resource for all U.S. market participants 

and investors. 
36 OFR 2016 Annual Report to Congress

Instrument Database Core Components 

■	 Reference Data. This component will consist of financial instrument reference data provided 

by commercial data providers included on an authoritative list of providers that conform to 

the data dictionary and data standards. The reference data will contain a unique identifier and 

comprehensive descriptive data for each financial instrument within each provider’s scope.

■	 Data Dictionary. The data dictionary will list widely used financial terms with consistent 

definitions. To support the database’s capability, reference data providers will use the same 

data dictionary to ensure consistency. For example, data definitions used in interagency data 

collection pilots about bilateral repo and securities lending were largely aligned with similar 

terms in existing regulatory reports.

■	 Data Standards. This component supplements the data dictionary with the definition or 

identification of data standards to document the formats (the structure and syntax) of financial 

instrument reference data. Establishing the formats and the common terms and definitions is 

essential for sharing, comparing, aggregating, and exchanging data.

Essential components for reference data 

about a financial instrument include 

identification and descriptions of attributes related to terms and conditions.

A financial instrument reference 

database will allow cheaper and more 

efficient analyses for interested parties. 

Such a database will help define a 

common language for all securities 

and financial contracts (conventional or 

complex) to improve information sharing 

throughout the financial system.

When we make the database available 

for public use, a range of market participants may access it to cross-check a 

reference identifier or an FSOC member 

agency may use it to align an internal 

data definition with one at another FSOC 

member agency.

The OFR financial instrument reference 

database will bring multiple datasets 

and tools together in one location, 

providing common definitions and 

open-source data for cross-industry 

data harmonization, that is, removing 

inconsistencies among datasets to make 

them compatible. 

In 2017, we expect to collaborate with 

the private sector to validate and prioritize the core components of the instrument database. 

We believe this effort will foster 

consensus among market participants 

about creating common data terms 

and definitions, and establishing best 

practices. The result would be OFR-led 

public-private partnerships to identify, 

implement, and share voluntary industry 

data standards based on consensus.

Data Stewardship 

The OFR’s data stewardship approach 

encompasses an internal data quality 

framework for financial datasets within 

the OFR. For example, the OFR has 

developed a process of data quality 

checking and data enrichment that we 

apply to money market fund data we 

receive from the SEC. These data are the 
Key Findings from Research and Analysis 37

basis for the OFR’s U.S. Money Market 

Fund Monitor. 

The main objective of data stewardship is 

to manage the organization’s data assets 

to improve reusability, accessibility, and 

quality. Data stewardship, which includes 

definition of security requirements, is the 

most important component of a broader 

initiative to establish best practices in 

data management throughout the OFR.

The data steward has responsibility for 

approving business naming standards, 

developing consistent data definitions, 

determining data aliases, developing 

standard calculations and derivations, 

documenting the business rules of the 

organization, monitoring the quality of 

the data in the OFR environment, and 

defining security requirements.

Through the data quality program, 

we vet and adopt best practices for 

data stewardship, ensuring that data 

obtained and used by the OFR are 

complete, accurate, timely, and usable. 

A longer-term goal is for best practices 

to be adopted by regulators and 

industry, which will improve data quality 

throughout the financial system. 

The data stewardship project includes 

data created by the OFR for permanent storage and sharing with external 

stakeholders, and it will also help other 

organizations improve their in-house 

data quality programs. 

Data that we purchase under contract 

from commercial vendors require 

the lightest touch because of the 

data quality assurance processes the 

providers use. Data collected directly 

from market participants following 

OFR-specified formats and standards 

require the most intensive cleansing 

because the OFR must validate these raw 

data. Noncommercial datasets acquired 

from government agencies or financial 

companies fall in between, depending 

on the standards and business rules 

applied.

Financial Entity Identification and 

Information Integration Challenge

In November 2015, the OFR and 

the National Institute of Standards 

and Technology (NIST) announced a 

challenge for research teams to link four 

disparate financial datasets.

The goal of the Financial Entity 

Identification and Information Integration 

Challenge was for information specialists 

to develop technologies that automatically align diverse financial entity identification schemes. In July 2016, eight 

teams shared their results at an industry 

conference.

NIST issued a grant to the University 

of Maryland to run the challenge. The 

organizations worked with subject 

matter experts from federal regulatory 

agencies, academia, and the financial 

industry, including computer and information scientists.

The techniques should enhance the 

toolkit for researchers, industry parti -

cipants, and regulators who regularly 

bring together and align data from a 

broad array of sources, including financial firms’ internal systems, regulatory 

collections, and public websites. Tools to 

improve the efficiency and accuracy of 

these data alignments will be important 

building blocks for a more resilient financial system.
38 OFR 2016 Annual Report to Congress

The Legal Entity Identifier

The Legal Entity Identifier, or LEI, is a data 

standard for precisely identifying parties to 

financial transactions. Similar to a bar code, this 

20-character reference code uniquely identifies 

legally distinct entities and includes associated 

reference data. Two fundamental principles of 

the LEI code are:

1. Uniqueness. Each LEI is assigned to a 

unique entity. 

2. Exclusivity. Once a legal entity has an LEI, 

it cannot ever be issued another. 

The LEI can help the financial industry, regulators, and policymakers trace exposures and 

connections across the financial system. It also 

generates efficiencies for financial companies 

in internal reporting, risk management, and in 

collecting, cleaning, and combining data. In 

addition, the LEI is expected to ease companies’ regulatory reporting burdens by reducing 

overlap and duplication of the multiple identifiers reporting firms must manage.

The worldwide LEI system reached significant milestones in 2015 when work began on 

designing the system to capture ownership 

information. But only some aspects of financial reporting in the United States and abroad 

require use of the LEI and these, in substantial 

part, rely on voluntary implementation. 

The global effort to establish the LEI is a model 

for other standards-setting initiatives. Government regulators and private financial firms 

recognized the tremendous benefit the LEI 

could bring. Industry provided the technical 

expertise and officials solved the “collective 

action” problems that were impeding adoption.

The OFR has led the global LEI initiative as it 

has progressed from conception to full-fledged 

operational system in just a few years. Until 

2016, the OFR’s Chief Counsel chaired the 

LEI Regulatory Oversight Committee, which 

oversees the global system. 

So far, recognition of the need for the standard 

has driven LEI adoption across the globe. 

Like any network, the LEI system has benefits 

that will grow as the system grows. Universal 

adoption is necessary to bring efficiencies to 

reporting entities and useful information to 

the FSOC, its member agencies, and other 

policymakers.

To accelerate adoption, the OFR has been 

calling for regulators to require broader use of 

the LEI in regulatory reporting. Regulators have 

begun to respond but more progress is needed.

Data Scope

Gaps in regulatory financial data limit 

the ability of the FSOC and its member 

agencies to identify and respond to risks 

to U.S. financial stability. Currently, the 

financial community lacks the scope of 

data needed to understand the financial 

landscape in sufficient detail.

For example, without access to the 

information relevant to financial risk 

oversight, agencies may be hindered in 

developing regulatory rules to increase 

market stability or effectively enforce 

rules already in place. 

In addition, global market innovations 

may result in new data gaps that increase 

the risk of financial shocks before market 

participants and regulatory agencies 

can identify them and take appropriate 

action. 

The Dodd-Frank Act requires the OFR 

to address problems of data scope. 
Key Findings from Research and Analysis 39

The OFR’s Steps for Improving 

Data Scope

1. Identify financial stability data 

needs. 

2. Determine gaps and 

weaknesses.

3. Prioritize and fill the gaps by 

better organizing existing data, 

promoting data standards, 

and sourcing new data when 

necessary.

We have the ability to look across the 

financial system and collect essential 

financial data from regulators and market 

participants. As a result, we can foster 

greater transparency for regulators, 

industry, and the public in markets where 

more comprehensive, detailed data are 

needed. 

Our data scope program is designed 

to collect new datasets and find new 

methods for identifying data gaps and 

new market activities. This work will 

help make data collecting and reporting 

more efficient, and reduce the reporting 

burden on financial institutions and 

markets. 

Improving data scope begins with understanding and documenting the flows of 

cash and collateral through the financial 

system, as well as creating an inventory 

of available financial data. Making such 

information available to regulators, 

industry, and the public will help create a 

more transparent system.

Together, a map of the cash and collateral flows and an inventory can show 

connections among existing datasets, 

reveal where data gaps lie, and expose 

data collections that may need to be 

eliminated because of duplication. The 

process also entails regular reviews of 

existing data, including data collected 

by other agencies, to promote improvements in current collections and evaluate 

whether data collections required by 

regulation will be useful for research.

Data Scope Program Projects

Global Financial Data Inventory

We will expand the current Interagency 

Data Inventory to include data available 

under international regulatory reporting 

requirements, forming a global financial data inventory. The organizational 

framework will be based on financial 

and nonfinancial industry participants, 

existing and new financial instruments, 

and trading venues.

The data scope program information 

will be cross-referenced against the 

standards and definitions available in 

the OFR’s metadata repository. Financial 

industry metadata tie together financial 

activities, the related business records 

and processes that create data, and the 

origins of those data. 

This integrated metadata catalog 

content should advance our understanding of activities and corresponding 

flows in the financial system, allowing 

us to create additional maps of funding 

and liquidity, collateral flows, and the 

“plumbing” of the financial system — 

the payments, clearing, and settlement 

systems.

The OFR’s Direct Data Collections 

Under the data scope program, we plan 

to deliver a data collection capability 
40 OFR 2016 Annual Report to Congress

with 21st century technology, security, 

and processes. We are positioning the 

OFR to serve as a leader in regulatory 

collections management and benefit our 

stakeholders by employing new methods 

that increase collection efficiency, which 

in turn can reduce reporting burdens. 

Our data collection strategy will outline 

the framework and elements — people, 

process, and systems — necessary to 

stand up an innovative and flexible 

collection capability. Our goal is for the 

OFR’s collection management practices 

to set the standard for the global regulatory community. 

Bilateral Repo Data and Securities 

Lending Data Collections

In collaboration with FSOC member 

agencies, the OFR initiated two voluntary pilot projects to collect samples of 

data about bilateral repo and securities lending transactions. The OFR 

conducted the pilots in partnership with 

the Federal Reserve and the SEC to fill 

these important data gaps.

Short-term funding markets are instrumental in providing liquidity — the 

lubrication that helps to keep the global 

financial system operating — but they 

remain vulnerable to runs and asset fire 

sales, posing potential risks to financial 

stability.

The U.S. repo market provides more than 

$3 trillion in funding to securities dealers 

every day. 

Industry and regulators need 

high-quality data about bilateral repos. 

Information and data on the triparty 

and GCF repo markets are published 

regularly, but information about bilateral 

repos is scant. 

Collecting these data on a permanent 

basis could help regulators identify 

potential vulnerabilities in a key component of the U.S. financial system.

The projects marked the first time the 

OFR went directly to industry to collect 

financial market information. Participation 

in the pilot projects was voluntary, and 

participating companies gave input on 

what data should be gathered. 

The first pilot project focused on the 

bilateral repo market, which represents 

half of the total repo market. 

Securities lending makes financial 

markets more liquid and allows investors 

who believe that a security is overvalued 

to borrow the security and sell it short, 

hoping to buy it back later at a lower 

price.

During the financial crisis, some securities lenders had large losses on cash 

collateral reinvested in other securities. 

These losses were one of the main 

reasons the government prevented the 

bankruptcy of the insurance company, 

American International Group. The data 

gaps that prevented regulators from 

Two Parts of Repurchase (Repo) Market 

Triparty 

repo market

Transactions are centrally settled by 

two large clearing banks. This market 

also includes the general collateral 

financing (GCF) repo market in which 

participants’ transactions are settled 

through a central counterparty. 

Bilateral 

repo market

Transactions are cleared and settled 

privately between two firms.
Key Findings from Research and Analysis 41

identifying and addressing risks in these 

markets during the crisis persist.

The FSOC’s 2016 Annual Report recommended developing a permanent data 

collection on bilateral repo and securities lending. The OFR plans to address 

this critical need through a rulemaking 

to launch ongoing data collections. The 

collections would include key types 

of data useful in assessing a range 

of financial stability risks, such as the 

buildup of debt in the financial system.

These permanent collections will build 

on our experiences with the pilots. We 

will make the collections available to 

FSOC agencies, and in aggregated form, 

to the public. These data would also be 

available for potential inclusion in developing a secured funding rate as an alternative to the London Interbank Offered 

Rate, or LIBOR.

Reference Rate Project - Alternatives to LIBOR

LIBOR, formerly known as the London Interbank Offered Rate, is a set of 

interest rate benchmarks calculated based on submissions from contributing 

banks to indicate the average rate at which they can obtain unsecured funding. 

U.S. dollar LIBOR is referenced by at least $10 trillion in loans and an estimated 

$160 trillion of derivatives contracts.

Concerns over manipulation of LIBOR rates and the possibility that the 

continued production of LIBOR could be in question have led to reform 

efforts, including an effort to identify alternative reference rates. 

To explore possible LIBOR alternatives, the Federal Reserve Board and the 

Federal Reserve Bank of New York convened the Alternative Reference 

Rates Committee (ARRC), composed primarily of large swaps dealers. The 

U.S. Department of the Treasury and the OFR participate in the ARRC as 

ex-officio members. 

The ARRC is considering two rates as possible alternatives: 

1. An unsecured funding rate, which would be the Overnight Bank 

Funding Rate published by the Federal Reserve Bank of New York.

2. A secured funding rate, which is being developed by the Federal Reserve, 

in cooperation with the OFR.

The ARRC is targeting the second quarter of 2017 for a decision on whether 

to use an unsecured or a secured rate as a potential LIBOR replacement. The 

Federal Reserve, in cooperation with the OFR, intends to begin production of a 

secured rate based on overnight, Treasury-backed repo transactions in the first 

half of 2018. This rate could potentially serve as a reference rate.

After the ARRC decides on a potential replacement, it will implement a transition strategy, a process that will likely take a period of some years.

U.S. dollar LIBOR 

is referenced by 

at least $10 trillion 

in loans and an 

estimated $160 

trillion of derivatives 

contracts.
FY 2016 Data Scope Published Works

Developing Best Practices for Regulatory Data 

Collections 

This paper, the OFR’s first published nondisclaimed work 

in the new Viewpoint Paper Series, contained insights 

about the approaches that deliver the best results in 

collecting regulatory data. The paper offered guidelines for 

collecting comprehensive, high quality, and interoperable 

data for financial stability analysis, market monitoring, 

and policymaking. The paper also identified pitfalls that 

financial regulators may encounter. 

The paper found that if regulators use current best practices 

of industry and government, they can collect financial data 

to answer questions about financial stability. In addition, 

the paper found that regulators should pay attention to 

details in each step of the collection process.

These improvements would make regulatory data collection 

more effective. For example, regulators will be in a better 

position to evaluate, understand, and work to remove 

obstacles to collaboration and data sharing and find ways 

to glean more value from current data collections to draw a 

more complete picture of the financial system. 

We are continuing to work with FSOC member agencies 

to improve the scope, quality, and accessibility of financial data, especially related to new and emerging sources 

of potential vulnerabilities. We plan to refine the best 

practices described in this paper as we learn from our 

experiences collaborating with financial regulators in 

conducting data collections from financial market participants. (Viewpoint Paper no. 16-01, May 10, 2016) 

1

2

3

Create a document about 

your collection’s purpose, 

process, schedule, and 

operations.

Describe data names, 

definitions, formats, rules, 

value ranges, transmission 

methods, etc.

Provide a mechanism for data 

reporters to ask questions 

and obtain help.

The U.S. Bilateral Repo Market: Lessons from a 

New Survey (Viktoria Baklanova, Cecilia Caglio, 

Marco Cipriani, and Adam Copeland) 

This brief provided aggregate statistics on U.S. dealers' 

bilateral repurchase, or repo, agreements and economically equivalent securities lending activities. The data were 

collected from the U.S.-affiliated securities dealers of nine 

bank holding companies under a voluntary pilot program 

run by the OFR and the Federal Reserve System with input 

from the SEC. 

The pilot collected valuable quantitative information and 

laid a foundation for a permanent data collection by identifying challenges of collecting this type of market data. 

Because this pilot included a limited number of major U.S. 

broker-dealers, leaving out smaller market participants, we 

found that the collection did not provide a full picture of 

the market. The brief cited the need for a larger scope in 

collecting data on the repo market and the need for better 

data quality. 

The permanent collection that the OFR and financial regulators are now developing builds on the lessons learned from 

this pilot data collection. (Brief no. 16-01, Jan. 13, 2016)

A Pilot Survey of Agent Securities Lending 

Activity (Viktoria Baklanova, Cecilia Caglio, 

Frank Keane, and Burt Porter) 

This paper reported aggregate statistics on securities 

lending activity from a pilot data collection by the OFR, 

the Federal Reserve System, and the SEC.

This collection found that on average, lending agents 

reported $9.4 trillion in securities available for lending. 

Investment firms held nearly $3 trillion of the securities 

available for lending, while pension funds and endowments had $2.5 trillion available. The dataset also reported 

lending activity, lending fees, rebate rates, and collateral 

management.

Filling gaps in data about securities lending is important 

because, although securities lending makes financial 

markets more liquid, it may also pose risks to financial 

stability. The paper cited the need for a permanent collection. (Working Paper no. 16-08, Aug. 23, 2016)

42 OFR 2016 Annual Report to Congress
Key Findings from Research and Analysis 43

Research Programs

The OFR has had a robust research 

program and agenda since its inception. 

Under our programmatic approach, we 

are focusing our research, analysis, and 

monitoring on specific financial stability 

issues central to our mission.

The OFR has several publication series — 

reports, briefs, working papers, discussion papers, and viewpoint papers — 

designed to advance understanding of 

issues related to financial stability. These 

works elicit discussion among policymakers, researchers, industry representatives, market participants, regulators, 

academia, and the public. 

This section describes our research-related programs and work during FY 2016.

Central Counterparties

The Dodd-Frank Act requires that all 

standardized swaps be centrally cleared. 

Clearing financial transactions through 

central counterparties promises significant benefits in reducing risks from 

exposure to the default of a counterparty, as long as the CCP has sufficient resources to meet its payment 

obligations.

The increased use of central clearing 

and CCPs in the derivatives markets also 

increases transparency and improves 

risk management, but central clearing 

creates a single point of vulnerability 

for the failure of the system — the CCP. 

Credit risks, liquidity risks, operational 

risks, and legal risks are concentrated in 

the CCP itself.

Trust in the risk management, 

creditworthiness, and resilience of 

central counterparties is paramount. 

Although CCPs individually release 

information to the public through their 

rulebooks and to regulators through 

safety-and-soundness examinations, 

CCPs also have an interest in evaluating 

and demonstrating their resilience 

collectively. Large enough shocks to 

one CCP could spread to others through 

clearing members they have in common. 

A clearer understanding of the risks 

posed by CCPs would help clearing 

members in assessing the risks they face 

and put regulators and policymakers in 

a better position to develop appropriate 

responses to those risks. Potential 

responses include capital and liquidity 

requirements for CCPs, resolution and 

recovery plans, and more robust tools 

and practices for risk measurement 

and management for CCPs and their 

clearing members, typically large and 

interconnected banks.

Central Counterparties Program Core Components

Conduct and publish research on CCP design, risks, 

risk management practices, and potential systemic 

impacts. 

Collaborate with domestic regulators and 

international authorities to assess current data gaps 

related to CCPs. 

Develop monitors and other tools to assess CCP risks.

Evaluate domestic and international policies

designed to mitigate CCP risk, including CCP stress 

testing.

■	

■	

■	

■	
44 OFR 2016 Annual Report to Congress

CCPs are supervised by multiple 

regulators. Although the OFR does 

not have a supervisory role, we can 

develop monitoring tools and improve 

the data available to regulators and 

market participants. We started our 

work evaluating vulnerabilities in central 

clearing and CCPs before we set up 

the CCP program, producing a number 

of significant papers exploring issues 

affecting CCPs. 

FY 2016 CCPs Published Work

Does Over-the-Counter Derivatives Reform Incentivize 

Central Clearing? (Samim Ghamami and Paul 

Glasserman) 

Reforms for the over-the-counter derivatives market sought to reduce 

risk in the financial system by requiring that standardized over-thecounter derivatives be cleared through CCPs. This paper explored 

whether reforms introduced in 2009, including higher capital and 

collateral requirements for derivatives not centrally cleared, created 

the intended cost incentives to encourage central clearing. The 

authors compared the total capital and collateral costs between 

bilateral and central clearing. The paper found that central clearing 

is sometimes more expensive. When cost favors central clearing, the 

benefit may be due to insufficient guarantee funds paid by banks 

to protect CCPs from members’ defaults. This situation puts cost 

incentives that favor central 

clearing at odds with efforts 

to maintain sufficient levels 

of guarantee funds. The paper 

cited data gaps that would 

need to be filled for a better 

understanding of the impact 

of reforms for the over-thecounter derivatives. (Working 

Paper no. 16-07, July 26, 2016)

Market Structure 

This program follows our mandate in the 

Dodd-Frank Act “to investigate disruptions and failures in the financial markets, 

report findings, and make recommendations to the Council based on those 

findings.”

Well-functioning financial markets are 

essential for the operation of the U.S. 

financial system. Trading volumes across 

major asset classes exceed $10 trillion on 

most trading days. This activity is spread 

through a wide range of financial instruments that trade in markets with widely 

varying structures. 

A thorough understanding of financial markets’ structures is essential to 

supporting and improving regulation of 

financial markets and to understanding 

the causes of disruptions.

A market’s structure is determined by 

whom and how many entities participate; how easy entry is; participants’ 

information, influence over pricing, and 

business models; how business models 

are evolving; how prices are formed and 

trades are executed; and what regulations are in force. 

Market structure emerges through a 

complex interaction of historical precedent, participant incentives, environmental circumstances, and regulation. 

Many financial markets have fundamentally changed in the past decade, 

evolving from human-centric trading with 

large counterparties matching buyers 

and sellers to machine-centric trading 

with multiple smaller counterparties 

that specialize in providing limited-time 

liquidity between immediate buyers and 
Key Findings from Research and Analysis 45

sellers. These new middlemen are often 

not the ultimate buyer or seller. This 

environment has created new risks, as 

shown by the Flash Crash of May 2010 

and the Flash Rally of October 2014.

Changes in capital charges for large 

middlemen, coupled with the phase of 

the business cycle, have contributed to a 

perceived reluctance to commit capital 

to dealing in markets that have historically been less liquid. These changes and 

other more gradual structural changes in 

the trading landscape warrant vigilance 

to avoid the potential systemic risk that 

would result from a market disruption. 

The current regulatory environment for 

financial markets is split among regulators, such as the SEC, CFTC, and the 

Federal Reserve. Objectives such as 

protecting investors and preventing 

market manipulation generally receive 

more attention than financial stability. 

In this regulatory environment, similar 

products may have different regulators 

and trade under different rules. S&P 

500 exchange-traded funds and S&P 

E-mini Financial Index Futures are good 

examples of assets that have a close 

fundamental relationship and are simultaneously traded by the same participants but are regulated by different 

agencies. 

We have published a significant body of 

research on market structure topics since 

our inception. That research includes 

mapping of funding and collateral 

markets, analyzing causes of contagion 

and interconnectedness in financial 

markets, and using agent-based models 

to analyze financial market phenomena.

Market Structure Program Core 

Components

■	 Identify changes in market 

structure for key financial 

instruments and the impact of 

these changes on risk.

■	 Study the links between 

innovation, regulation, and 

incentives on market structures.

■	 Identify data gaps that prevent 

effective understanding of risks 

in markets.

■	 Develop monitoring tools for 

insight into market risk and 

evaluate policies designed to 

mitigate these risks.

Monitors Program 

The Dodd-Frank Act requires the OFR to 

develop tools for risk measurement and 

monitoring. We are fulfilling this requirement by developing and launching 

a suite of interactive online monitors 

to assess, measure, and monitor risks 

throughout the financial system. 

Some OFR monitors are already available to the public. In late July 2016, we 

launched our interactive U.S. Money 

Market Fund Monitor. The monitor 

converts data from the SEC’s Form 

N-MFP into a user-friendly format on the 

OFR website. Users are able to examine 

individual funds and the industry as a 

whole on the basis of credit, interest 

rate, and liquidity risks. The monitor also 

helps the OFR and other users understand industry trends and activities in 

new ways. The monitor analyzes each risk 

category based on portfolio statistics 

and holdings.
FY 2016 Market Structure Published Works

Interconnectedness in the Global Financial 

Market (Matthias Raddant and Dror Y. Kenett)

The global financial system is complex, with many crossborder connections among companies and markets. This 

working paper found that returns of stocks move together 

within regions in times of stability but move in sync 

globally in times of crisis. 

The authors analyzed daily and weekly closing prices of 

nearly 4,000 stocks in 15 countries from 2006 to 2013. 

Using these data, the authors normalized stock returns 

and estimated relationships across stocks. They found that 

countries like the United States and Germany are core 

nodes that typically have more interconnections among 

stocks. Analysis of weekly closing prices showed that financial services stocks have the most links. When daily closing 

prices were analyzed, energy and materials stocks showed 

the most links. This result may indicate that fast-moving 

commodity prices influence stocks in their sectors, and 

movement in the financial services and industrial sectors 

is influenced by factors that move more slowly. (Working 

Paper no. 16-09, Sept. 27, 2016)

Looking Deeper, Seeing More: A Multilayer 

Map of the Financial System (Richard 

Bookstaber and Dror Y. Kenett)

This brief introduced a three-layer map to illustrate how 

the circulation of short-term funding, collateral, and assets 

may spread financial stability risks throughout the U.S. 

financial system. Potential vulnerabilities and contagion 

paths emerge as large banks, hedge funds, central clearinghouses, and other market participants become increasingly 

interconnected.

The brief used the example of Bear Stearns, a New York 

investment bank that collapsed during the financial crisis 

and was sold to another bank, to illustrate through a multilayer map how risks begin and spread through the financial 

system. A single-layer map cannot fully capture the array of 

activities in the financial system or how different nodes are 

affected by shocks or disruptions. 

The crisis demonstrated the need for a more sophisticated 

way to monitor the financial system, because risks emerged 

and spread in unanticipated ways. The multilayer map is 

a new tool that can prove valuable in tracking contagion 

in the system, identifying points of vulnerability, and 

assessing threats to financial stability. (Brief no. 16-06, July 

14, 2016)

Map of Collateral Uses and Flows (Andrea 

Aguiar, Richard Bookstaber, Dror Y. Kenett, and 

Thomas Wipf)

This working paper mapped the flow of collateral in 

financial markets. Market participants exchange collateral 

to support financial activities, including secured funding, 

securities lending, securities exchanges, margin lending, 

derivatives, and clearing. This paper showed how collateral 

can spread stress through the financial system. The paper 

also explored the effects of new regulations on collateral, 

including higher demand for high quality liquid assets and 

lower demand for illiquid collateral. The paper identified 

several data gaps. For example, existing regulatory and 

public data exclude derivatives transactions, only report 

aggregate data from primary dealers, and often lack detail. 

The collateral map suggests that more detailed, complete 

data broken out by functional area are needed for better 

evaluation of the examples. (Working Paper no. 16-06, 

May 26, 2016)

46 OFR 2016 Annual Report to Congress
Key Findings from Research and Analysis 47

The OFR also previously released its 

biannual Financial Stability Monitor and 

a quarterly Financial Markets Monitor, 

which reviews themes and developments 

in financial markets. In addition, the OFR 

has a "G-SIB Scores Interactive Chart" on 

our website, showing systemic importance scores and score components for 

global systemically important banks.

We are planning public release of 

additional monitors in coming years.

We envision our monitors program to 

be a source of high-quality monitoring 

tools used by key stakeholders, such 

as the FSOC and its member agencies, 

members of Congress, financial industry 

participants, academics, the news media, 

and the public. The monitors will show 

emerging trends in the financial system 

and continue to establish the OFR as a 

Monitors Program Core Components

■	 Research and development. Review proofof-concept ideas for new monitors, build 

prototypes, and identify gaps in monitoring and 

data. Incorporate research and feedback as we 

go.

■	 Production process. Move prototype monitors 

into production and set standards for data 

collection and quality, user interface design, 

data sharing, access, and availability.

■	 Web portal. Securely share the monitors and 

their data with authorized users through an 

interactive Web portal.

■	 Communication. Engage with stakeholders to 

share new releases of monitors, solicit feedback, 

disseminate analysis, share research results, and 

help identify risk areas. 

FY 2016 Monitors Published Works

Reference Guide to the OFR's U.S. Money Market Fund Monitor (Viktoria Baklanova and Daniel Stemp) 

This brief described the U.S. Money Market Fund Monitor, the online charting tool the OFR launched on July 20, 2016, 

to help users take a closer look at the portfolios of U.S. money market funds. To develop the tool, the OFR analyzed more 

than 4 million records of data on the holdings of about 500 funds. 

The financial crisis illustrated the vulnerability of money market funds to runs and prompted regulators to implement 

reforms in this market. Improving transparency was an important component of these reforms. 

The OFR used data from the SEC about money market 

funds to build an interactive set of online charts to analyze 

key investments and drill down to detailed information. 

The U.S. MMF Monitor helps regulators and other users 

track portfolios and risk profiles of funds. The monitor also 

examines investment trends in the industry. These interactive 

charts make the analysis of complex data more intuitive and 

accessible. 

This monitor is part of a suite of monitor products that we 

are planning as part of our monitors program, including the 

Financial Stability Monitor introduced in 2013. (Brief no. 

16-07, July 20, 2016)
48 OFR 2016 Annual Report to Congress

FY 2016 Monitors Published Works, continued

Does Unusual News Forecast Market Stress? (Harry Mamaysky and Paul Glasserman) 

This paper investigated the use of automated text 

analysis by computers to determine whether negative 

news predicts increased volatility in stock markets. 

The authors developed a methodology to analyze the 

text of articles to determine the overall sentiment of 

an article and classify its degree of “unusualness.” 

They found negative sentiment extracted from more 

than 360,000 news articles about 50 large financial 

services companies to be useful in forecasting market 

volatility. When “unusual” news with negative sentiment increases, stock market volatility also increases. 

Markets appear to respond to unusual news gradually. 

This new methodology may be useful in a monitoring 

tool to help anticipate stress in the financial 

system. (Working Paper no. 16-04, April 20, 2016)

leader in the field of financial stability 

monitoring and analysis. 

The monitors program also gives the 

OFR opportunities to collaborate with 

regulators on new ways to present and 

analyze their data. The program will 

not duplicate work by other financial 

regulators. We plan to create analytical 

tools that take advantage of other 

agencies’ expertise and develop 

comprehensive tools that complement 

existing ones.

Risks in Financial Institutions

The OFR investigates risks arising from 

the activities of financial institutions as 

part of our mission to promote financial 

stability.

The current U.S. regulatory structure 

fragments supervision and regulation 

of different types of financial institutions. This fragmentation can make the 

risk landscape difficult to view and can 

impede assessment of the impact of 

government regulations. In addition, 

recent regulations have added to the 

complexity of financial institution risk 

analysis and supervision.

The OFR does not set regulatory policies 

but instead takes a bird’s eye view of 

the U.S. financial system to track the 

movement of risks. 

The OFR assesses financial stability 

risks arising from the activities of financial institutions in a dynamic business 

and regulatory environment. Banks 

operate under a complex new set of 

regulatory requirements related to 

liquidity, capital, and other areas. These 

requirements are not fully phased in yet. 

Nonbanks operate in an environment 

of less prescriptive regulation. All types 

of financial institutions operate in a 

business environment characterized by 

rapid innovation. 

For banks, we are primarily concerned 

with identifying potential conflicts 
Key Findings from Research and Analysis 49

among requirements, new risk-taking 

behaviors, and financial innovations that 

result in additional risks not captured by 

current and proposed regulations. 

For nonbanks, potential systemic risks 

arise from their varied financial activities, 

as well as the transmission of systemic 

risk between banks and nonbanks. 

Differences in regulation can cause 

risky activities to migrate from banks to 

nonbanks.

In addition, public guarantees of some 

nonbanks’ solvency during the financial 

crisis may create incentives for nonbanks 

to take risks, much the same way deposit 

insurance can create risk-taking incentives for banks.Through this program, 

we will contribute to discussions about 

nonbank policymaking options. We 

are pursuing research on all types of 

nonbanks that can affect the stability of 

the financial system. 

Risks in Financial Institutions Program Core 

Components

■	 Assess the risks financial institutions pose that 

current regulations do not address.

■	 Identify and fill gaps in data needed to assess 

financial stability.

■	 Evaluate regulatory policies designed to promote 

financial stability, including their interactions and 

unintended consequences.

■	 Monitor and assess risks related to financial 

innovations.

FY 2016 Risks in Financial Institutions Published Works

What Can We Learn from Publicly Available 

Data in Banks' Living Wills? (Steve Bright, Paul 

Glasserman, Christopher Gregg, and Hashim 

Hamandi) 

This brief analyzed the public portions of resolution plans, 

or "living wills," in which large U.S. banks describe how 

they would manage their own potential failures. The 

authors found that the public information in the living 

wills is not sufficient to determine whether these banks 

could go through bankruptcy without extraordinary 

government support.

For example, living wills’ public sections do not address 

the challenges of the resolution of banks with cross-border 

activities or provide information about the financial 

connections between bank holding companies and their 

subsidiaries. The limitations of the publicly available data 

in living wills make drawing definitive conclusions difficult, the brief found. It also found that reducing interconnectedness could help in resolving a bank holding company 

in a fast and orderly way.

Additional data and standardization of the public portions 

would strengthen the understanding of progress toward 

resolving U.S. global systemically important banks without 

extraordinary government support. (Brief no. 16-05, May 

25, 2016)

The Real Consequences of Bank Mortgage 

Lending Standards (Cindy M. Vojtech, Benjamin 

S. Kay, and John C. Driscoll)

This paper explored the relationship between changing 

loan standards and loan denial rates, aggregate mortgage 

credit, and loan performance. By matching responses to the 

Federal Reserve’s Senior Loan Officer Opinion Survey and 

Home Mortgage Disclosure Act data, the authors found 

that when respondents report tightening loan standards, 

mortgage denial rates increase about one percentage point. 

The increase in denial rates corresponds with a $690 

million decrease in total aggregate mortgage credit per 

quarter. When the survey reports tightening, applications 

for loans with high interest rates (often subprime and 

nontraditional mortgages) fall 14 percent to 20 percent. 
Risks in Financial Institutions, continued

When the survey reports easing standards, mortgage 

denial rates decline.

The paper found Metropolitan Statistical Areas with more 

exposure to banks that reported tightened standards had 

lower delinquency rates two years after the tightening. 

House prices fell in these areas.

This trend suggests that tighter lending standards are 

associated with better loan performance, and changing 

standards can potentially be used as a leading indicator of 

the financial industry’s vulnerability to shocks. (Working 

Paper no. 16-05, May 11, 2016)

Credit Ratings in Financial Regulation: What's 

Changed Since the Dodd-Frank Act? (John 

Soroushian) 

The Dodd-Frank Act required federal regulators to remove 

credit rating references from their regulations. Regulators 

have responded by substituting definitions of creditworthiness, requiring regulatory models, and hiring third parties 

other than rating agencies to set credit standards. This 

brief examined the challenges of each approach. 

Financial regulators have relied on credit rating agencies 

for decades. Financial institutions could satisfy certain 

regulations — for example, about how much capital they 

must have — by holding assets with high ratings from 

certain recognized rating agencies.

The financial crisis illustrated the potential risks from 

incentives for credit rating agencies to inflate their ratings 

to expand their businesses. 

However, the brief found that alternatives to credit rating 

agencies all come with challenges. In addition, the new 

regulatory framework could promote the growth of new 

types of services that are similar to rating agencies but 

subject to less stringent oversight.

One way to address these concerns would be by using 

updated credit rating models regularly reviewed by regulators and independent third parties. They could suggest 

and implement remedies to enhance these models when 

they identify weaknesses — a complicated task. (Brief no. 

16-04, April 21, 2016)

Systemic Importance Data Shed Light on 

Global Banking Risks (Bert Loudis and Meraj 

Allahrakha)

This brief used the latest available data to show that U.S. 

banks remain among the most systemically important 

banks in the world. Also with this brief, we introduced 

an online interactive chart to help users compare the 30 

G-SIBs.

G-SIBs are banks whose failure could pose the greatest 

threat to the international financial system. The brief 

found that, although the systemic importance scores of 

U.S. G-SIBs are among the highest, the scores of Chinese 

banks increased the most in the latest year that data were 

available. According to the data, the systemic importance 

scores of most U.S. G-SIBs changed little. Wells Fargo was 

the notable exception; its score rose 18 percent. 

For the first time, the Basel Committee publicly disclosed 

a full list of international banks that submitted systemic 

importance data. These data allow a deeper analysis of the 

systemic importance of all reporting banks. 

50 OFR 2016 Annual Report to Congress
Key Findings from Research and Analysis 51

Risks in Financial Institutions, continued

Starting this year, regulators are using the new data to 

determine capital requirements for these banks. The 

information also helps in analyzing risks that the largest 

banks pose to financial stability and how those risks are 

changing. (Brief no. 16-03, April 13, 2016)

Stopping Contagion with Bailouts: 

Microevidence from Pennsylvania Bank 

Networks During the Panic of 1884 (John 

Bluedorn and Haelim Park)

Little research has been done to understand if and how 

bailouts can stabilize the financial sector. This paper found 

that bailouts, either from the public or private sector, can 

contribute to financial stability by preventing the spread of 

crises related to systemically important banks.

The authors studied the Panic of 1884. New York clearinghouse member banks assisted Metropolitan National 

Bank, an important bank for many banks outside of New 

York City, and prevented a minor crisis in New York from 

becoming a system-wide event. Even though the actions 

prevented a system-wide event, the paper cited some nearand medium-term effects on the behavior of banks outside 

of New York.

Policymakers and regulators are currently working 

to tighten regulations and end reliance on government-funded bailouts. The persistence of the too-big-tofail problem highlights the importance of these efforts. 

(Working Paper no. 16-03, March 30, 2016)

Form PF and Hedge Funds: Risk-measurement 

Precision for Option Portfolios (Mark D. Flood 

and Phillip Monin) 

This paper examined Form PF as a way to assess systemic 

risk and investor protection. Form PF implements a 

Congressional mandate enacted after the financial crisis to 

report hedge fund risk exposures.

The authors examined risk-measurement tolerances 

by creating simulated hedge funds and reporting their 

risk exposures using the instructions on Form PF. The 

authors assessed how precisely Form PF captured the risk 

exposures of hedge funds. The paper found that hedge 

funds with identical presentations on Form PF had significant differences in risk and performance.

Form PF has helped to increase transparency and reduce 

risk outside the framework of prudential oversight and 

supervision of the traditional banking system.

The paper suggested changes to improve risk reporting on 

Form PF. For example, Form PF would be a more precise 

risk measurement tool if all Form PF filers were required to 

complete questions that are currently optional, if methodologies were established for calculating certain items on 

the form, and if the form were revamped to provide more 

detail. (Working Paper no. 16-02, March 23, 2016)

Mind the Gaps: What Do New Disclosures Tell 

Us About Life Insurers’ Use of Off-BalanceSheet Captives? (Jill Cetina, Arthur Fliegelman, 

Jonathan Glicoes, and Ruth Leung)

This brief analyzed regulatory reforms to strengthen 

disclosure and asset quality standards for U.S. life insurers' 

use of captive reinsurance. Because of limitations and 

exemptions, disclosure requirements apply to only 35 

percent of the captive industry.

Some U.S. life insurance companies use wholly owned 

captive reinsurers to reduce regulatory requirements. In a 

captive reinsurance transaction, a life insurance company 

transfers risk to a captive reinsurer that is part of the same 

parent group.

The brief found use of captives by U.S. life and reinsurance 

companies has increased sharply since 2002. Although 

captives can be an integral part of a life insurer’s operations, they can also cloud regulatory reporting of an 

insurer’s financial position and create “blind spots” in the 

monitoring of threats to financial stability. 

The brief found that publicly available data are insufficient 

to analyze fully the risks from captives and the impact 

on insurers’ financial conditions. Regulators have revised 

reporting standards to improve the public data, but gaps 

remain.

Regulators should require more disclosure about captives 

and evaluate the case for exemptions to asset quality 

requirements for captives, the brief said. (Brief no. 16-02, 

March 17, 2016)
Risks in Financial Institutions, continued

Regulatory Arbitrage in Repo Markets 

(Benjamin Munyan)

This working paper documented a pattern of foreignowned broker-dealers reducing their borrowing in the U.S. 

triparty repo market, a key source of short-term funding 

in the financial system, at quarter end, and immediately 

returning to the market when a new quarter begins. This 

activity reduces their capital requirements under the 

leverage ratio. 

The paper found that non-U.S. banks with low capital 

ratios appeared to temporarily remove an average of $170 

billion from the U.S. repo market before the end of each 

quarter. It explored how this “window dressing” can create 

spillover effects and affect systemic risk. 

Window dressing understates a bank’s leverage and 

obscures the fact that systemic risk is higher than 

quarter-end reports indicate. The practice also creates the 

spillover effect of making the end of the quarter a good 

time to buy bonds from dealers.

Findings suggest that using daily reporting of a quarterly 

average for capital requirements could fix the issue. 

(Working Paper no. 15-22, Oct. 29, 2015) 

Contagion in Financial Networks (Paul 

Glasserman and H. Peyton Young) 

This working paper surveyed the growing amount of literature about interconnectedness and financial stability. The 

interconnectedness of the financial system remains one of 

the least understood factors of the recent financial crisis. 

To determine whether bank interconnectedness promotes 

greater stability through risk sharing or if it makes markets 

more fragile by spreading contagion, analysis must account 

for leverage levels and differences in institution size, the 

paper found.

Additional research is needed to find ways to identify 

the most vulnerable institutions and those most likely 

to generate contagion and to identify ways to measure 

the size of a systemwide event. More work is also needed 

on making inferences from incomplete data and partial 

observations of network data. (Working Paper no. 15-21, 

Oct. 20, 2015)

The Difficult Business of Measuring Banks’ 

Liquidity: Understanding the Liquidity 

Coverage Ratio (Jill Cetina and Katherine 

Gleason)

Bank regulators adopted a new requirement called the 

liquidity coverage ratio (LCR) after the financial crisis to 

help ensure that banks maintain enough liquid assets to 

cover their financial obligations during times of stress.

This working paper found that a bank’s LCR can vary in 

ways unrelated to underlying liquidity risk. In addition, 

differences in international and U.S. rules for calculating 

the LCR reduce the measure’s comparability among 

banks. Changes to the LCR by U.S. regulators could have 

unintended consequences, such as difficulty in interpreting 

daily fluctuations in U.S. banks’ LCRs.

The paper identified potential methods to make the LCR 

comparable among banks and to strengthen its efficacy 

as a regulatory metric. Additional study on the LCR and 

its implications for central banks’ strategies is needed. 

(Working Paper no. 15-20, Oct. 7, 2015)

52 OFR 2016 Annual Report to Congress
Key Findings from Research and Analysis 53

Stress Testing

The Dodd-Frank Act set stress testing 

requirements for large financial firms and 

requires the OFR to evaluate and report 

on stress tests.

Since the financial crisis, substantial 

emphasis has centered on strengthening the supervisory stress testing of 

banks. Bank capital requirements and 

liquidity regulation are designed to help 

banks survive severe shocks, but stress 

tests can help in identify emerging 

vulnerabilities.

Stress tests can also offer supervisors 

greater flexibility in evaluating possible 

shocks that could differ from previous 

stress periods used to calibrate banks’ 

regulatory requirements.

In addition, supervisors can use the tests 

to assess the risk management capabilities of the industries and individual firms 

they supervise.

Through the stress testing program, we 

will continue to conduct policy-oriented 

research and analysis to strengthen U.S. 

regulators’ stress-testing methodologies 

and approaches. 

OFR research in previous years 

suggested that a broader range of stress 

scenarios should be considered in U.S. 

bank stress tests. However, the approach 

to stress testing in the United States 

remains essentially microprudential, 

focusing on the resilience of individual 

banks to specific shocks rather than on 

the broader and more complex macroprudential question of how stress might 

be transmitted among firms, through 

financial markets, and into the real 

economy.

Stress tests could show whether certain 

large firms are more likely to pose 

systemic risks when adverse situations 

arise.

Any U.S. financial firm with assets of 

more than $10 billion and whose primary 

regulator is a federal agency must 

conduct annual company-run stress 

testing. 

Government-sponsored enterprises, 

broker-dealers, asset managers, CCPs, 

and insurers are all subject to stress 

testing requirements, but with varying 

degrees of prescriptiveness. For nonbank 

financial institutions, capital or liquidity 

regulation might not exist, depending on 

the type of firm. Also, some supervisors 

do not employ standardized scenarios 

or they view stress testing as a task 

to be carried out by firms instead of 

supervisors.

In the fourth quarter of FY 2016, the 

OFR began to receive stress testing data 

collected by the Federal Reserve as part 

of its Comprehensive Capital Analysis 

and Review for the largest U.S. banks. 

The OFR plans to begin producing 

research using these data in FY 2017.
54 OFR 2016 Annual Report to Congress

FY 2016 Stress Testing Published Works

Stressed to the Core: Counterparty 

Concentrations and Systemic Losses in CDS 

Markets (Jill Cetina, Mark Paddrik, and Sriram 

Rajan) 

This paper applied the Federal Reserve's supervisory 

stress test scenarios to examine the impacts on banks 

— and the banking system as a whole — from defaults 

by their largest counterparties in the credit derivatives 

markets. The authors found higher loss concentrations 

for the banking system than for individual firms and the 

potential for large indirect losses when a major counterparty defaults.

The authors applied supervisory stress test scenarios from 

the Federal Reserve’s Comprehensive Capital Analysis 

and Review to evaluate the default of a bank’s largest 

counterparty. They found that indirect effects of such a 

default through the bank’s other counterparties would be 

larger than the direct impact on the bank. 

The paper highlighted the importance of robust data 

collection and analysis by regulators. Specific detailed 

data are needed to analyze systemic risks.

Government supervisors must also have the capacity to 

compute market losses similar to the losses that would be 

realized under stress. Current data collections and analysis 

may not extend far enough, the paper said. (Working 

Paper no. 16-01, March 8, 2016)

Measuring the Unmeasurable: An Application 

of Uncertainty Quantification to Financial 

Portfolios (Jingnan Chen, Mark D. Flood, and 

Richard B. Sowers) 

Uncertainty is a key factor in financial stability, but 

measuring and quantifying uncertainty can be difficult. 

Using engineering techniques that focus on understanding the probability of a system failure such as an 

airplane crash or bridge collapse, the authors applied 

stress testing to a portfolio of Treasury bonds.

This paper found that uncertainty in the financial system 

spiked in late 2008 during the financial crisis, precisely 

when certainty was needed most. When the method 

described in this working paper is applied at the level of 

an individual firm, human decision making can affect 

the stress testing process; firm-level stress testing will 

likely never be fully automated. This method works 

better at the portfolio level and with financial processes 

that are more automated, such as securities trading and 

portfolio risk analysis. This methodology will be of 

greater use as financial processes become increasingly 

automated. (Working Paper no. 15-19, Oct. 1, 2015)
Key Findings from Research and Analysis 55

Activities and Published 

Work Outside of Programs

Although the majority of our core work 

falls securely within our eight current 

programs, the OFR also has some 

significant initiatives not aligned with a 

program, mostly notably, our work on 

shadow banking. We published one 

working paper in 2016 not aligned with a 

program. 

FY 2016 Miscellaneous Published Work

Safe Assets as Commodity Money (Maya Eden and Benjamin Kay) 

This paper examined the systemic implications of the supply of liquid safe assets, such as 

Treasury bills. The paper explored how liquid safe assets facilitate the trades of risky assets. 

The paper found that financial 

markets may be remarkably resilient to changes in the stock of 

liquid assets. The paper advanced 

the understanding of the properties of safe assets as a medium of 

exchange in financial trading. 

The authors found that a 

monetary system that relies 

on safe assets as a medium of 

exchange is relatively efficient. 

(Working Paper no. 15-23, Nov. 

25, 2015)
56 OFR 2016 Annual Report to Congress Structure Monitors Risks in Risks in Financial Institutions 

Stress Tests Central Counterparties Data Quality Data 

Central Counterparties Data Accessibility Data Quality 

Data Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Data Accessibility Data Quality 

Data Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties Data 

Quality Central Counterparties Data Quality Data Scope 

Market Structure Monitors Risks in Financial Institutions 

Stress Tests Central Counterparties Data Accessibility 

Data Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties Data 

Accessibility Data Quality Data Scope Market Structure 

Monitors Risks in Financial Institutions Stress Tests Central 

Counterparties Data Accessibility Data Scope Market 

Structure Monitors Risks in Financial Institutions Stress 

Tests Central Counterparties Data Accessibility Data 

Quality Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties Data 

Accessibility Data Scope Market Structure Monitors 

Risks in Financial Institutions Stress Tests Central 

Counterparties Data Accessibility Data Scope Market 

Scope Market Structure Monitors Risks in Financial 
Meeting Our Mission 57

MISSION

Status of the Efforts of the OFR in Meeting 

Its Mission

OFR Mission - Promote financial stability by delivering highquality financial data, standards, and analysis for the FSOC 

and the public. 

Under the Dodd-Frank Act, a primary purpose of 

the OFR is to support the FSOC and FSOC-member 

agencies. We also strive to meet our dual research 

and data mission by collecting and standardizing 

financial data, assessing threats to financial stability, 

and evaluating financial stability policies.

This chapter focuses on our FSOC support and the framework 

for our programmatic approach to our mission-critical work.

It also discusses how we are working to achieve our mission 

through wide-ranging collaboration in the United States and 

internationally, ways we work to ensure we are transparent and 

accountable, continued execution of our strategic plan, and 

initiatives to nurture and build our workforce.

In addition, this chapter contains a summary of our budget 

and highlights of the information technology infrastructure and 

safeguards essential for our work.
58 OFR 2016 Annual Report to Congress

Support of the FSOC and Its 

Member Agencies

The OFR Director is a nonvoting member of the FSOC, and 

members of the OFR staff are involved daily in a wide variety of 

FSOC activities and initiatives. 

We chair the FSOC Data Committee, which works on common 

challenges related to data management and governance. We 

also co-chair the committee’s working group that updates 

the Interagency Data Inventory, the catalog of data collected 

by FSOC member agencies. Now in its third year, the inventory references 428 datasets, covering nine FSOC member 

agencies. The inventory is on the OFR website to promote 

public understanding of financial regulatory data collections.

We are also participating in the FSOC’s analysis of risks in 

hedge funds and other asset management activities, and we 

supply monthly data and analysis of market trends. 

The OFR contributes to the process of identifying and prioritizing threats to financial stability by presenting updates of our 

monitors and delivering ongoing threat assessments to the 

FSOC Systemic Risk Committee.

In addition, we provide data and analysis to support the 

FSOC’s nonbank designation process as the FSOC considers 

whether nonbank financial firms meet thresholds in the FSOC’s 

initial quantitative metrics and merit further analysis.

OFR staff members also make presentations and participate 

in discussions for a variety of other FSOC working groups, 

including the Regulation and Resolution Committee, Insurance 

Industry Working Group, and CCP Working Group. CCP stands 

for central counterparty.

In addition, the OFR assists the FSOC in developing its annual 

report through analysis and writing support.

Finally, the OFR supports the FSOC Secretariat by providing 

procurement contract support for the Secretariat’s purchase 

of commercial data. This support allows the Secretariat to 

benefit from OFR expertise on processes and issues related to 

commercial data acquisition and management.
Meeting Our Mission 59

In fiscal year (FY) 2016, we continued to 

assist the CFTC — an FSOC member 

agency — with a project begun in 

FY 2014 to improve the quality of data 

collected from swap data repositories. 

We gave recommendations for the 

standardization of the large amount 

of daily data that companies report to 

repositories about swap trades. The 

project also analyzed existing swap 

data to determine the best approach 

for aggregating data to calculate risk 

exposures and liquidity.

We also continue to work with FSOC 

member agencies and other U.S. 

regulators to require a Legal Entity 

Identifier (LEI) in data reported to them 

by mortgage originators, servicers, and 

others, as well as a universal loan identifier in mortgage transactions and data 

collections.

In addition, the OFR continued during 

the fiscal year to engage in the effort 

begun in 2015 by the primary regulators 

for the housing and mortgage sectors 

to convene an interagency workshop 

on integrating the fragmented data 

produced by the U.S. mortgage finance 

system.

Our Programmatic i

Approach 

Late in 2015, we launched our programmatic approach to focus our missioncritical work on the areas most important 

to our stakeholders and successful 

pursuit of our mandate under the 

Dodd-Frank Act. 

We initially launched eight programs for 

coordinating our work on data, research, 

and analysis. We expect to expand that 

number over time. 

Each program contains an array of 

elements, including an analytical framework, assessment of risks, identification 

of data requirements, and evaluation of 

program-specific policy tools. In each 

case, we have linked program goals to 

our statutory requirements.

The approach also includes important 

internal and external activities that are 

not part of a program (for example, 

producing this report), as well as 

day-to-day activities essential to the 

operation of the organization. 

In FY 2016, we established and built 

out the governance structure for our 

programmatic approach, headed by a 

Program Review Board of senior leaders. 

We also continued our work on 

important projects under the programs 

during the year and made the results of 

that work public. In July, we released the 

U.S. Money Market Fund Monitor on the 

OFR website.

We plan to build on the 

programmatic approach 

n coming years. We 

believe this approach 

helps us convey more 

clearly to Congress 

and other stakeholders 

the progress of our 

day-to-day work toward 

achieving our statutory 

mission.
60 OFR 2016 Annual Report to Congress

Collaboration

Collaboration is central to the OFR's 

success. We foster a virtual researchand-data community to extend the reach 

and impact of what our staff members 

can accomplish alone by collaborating 

with colleagues in government, industry, 

and academia in the United States and 

around the globe.

We interact with our Financial Research 

Advisory Committee and benefit greatly 

from the vast experience and wise 

counsel of its members.

We also collaborate with colleagues 

around the world — a necessity for 

tracking threats to financial stability in an 

economy that spans national boundaries. 

In addition, we engage with Congress, 

industry organizations, think tanks, and 

a broad array of other stakeholders to 

explain our work and its importance, and 

receive feedback on how we can best 

pursue it.

To promote dialogue and exploration 

of issues related to financial stability, we 

hold and cosponsor conferences and 

other events.

Our outreach also includes remarks, 

presentations, and appearances in panel 

discussions by OFR Director Richard 

Berner and other members of the OFR 

staff who speak at events sponsored by 

industry groups, government regulators, 

academic institutions, and others.

For example, the Director delivered 

keynote remarks in June during a conference in Philadelphia sponsored by the 

Federal Reserve Bank of Philadelphia, 

the Wharton Financial Institutions Center, 

the Imperial College Business School, 

and the Journal of Financial Services 

Research. He also made remarks in April 

at the 25th Annual Hyman P. Minsky 

Conference on the State of the U.S. and 

World Economies in New York State.

In the international arena, Berner 

delivered remarks in Basel, 

Switzerland, in early October at the 

Third Annual Workshop on Financial 

Interconnectedness, hosted by the 

Bank for International Settlements, 

DeNederlandscheBank, and Deutsche 

Bundesbank Eurosystem.

Other OFR staff members participated 

in a conference on securities lending 

hosted by the Risk Management 

Association in October and a conference on market liquidity hosted by the 

Bank of England in December. OFR 

staff members also participated in a 

conference on managing financial risks 

in Colombia in May and the National 

Bureau of Economic Research summer 

meetings in July.

Members of the OFR research staff 

participated as invited speakers or 

panelists in more than 29 conferences, 

seminars, and workshops related to our 

mission in FY 2016.
Meeting Our Mission 61

FY 2016 Financial Stability Sponsored or Cosponsored Events

February 5,

2016 

The OFR and the FSOC co-sponsored 

the fifth annual conference, “Taking 

Stock of Financial Resilience.” 

Speakers and panelists included representatives of the Federal Reserve Board, Federal 

Deposit Insurance Corp., Department of the 

Treasury, SEC, CFTC, and the financial services 

industry.

December 3-4, 

2015 

The OFR and the Federal Reserve 

Bank of Cleveland cosponsored the 

conference, “Financial Stability: Policy 

Analysis and Data Needs.”

The event brought together academics, policymakers, and market participants to discuss 

macroprudential policy development and 

implementation, tools that measure vulnerabilities in the financial system and identify 

potential threats to financial stability, and the 

measurement challenges of implementing 

Dodd-Frank Act regulations.

October 29-30, 

2015

The OFR, the Bank of England, and 

the European Central Bank co-sponsored the second workshop for 

central bankers and financial regulators, “Setting Global Standards for 

Granular Data.“ 

Participants from around the world discussed 

potential solutions and examples of global 

standards for detailed data, such as best 

practices for managing data inventories and 

taxonomies and standards related to stress 

testing.

October 22-23, 

2015

The OFR and the Center on Finance, 

Law, and Policy at the University of 

Michigan cosponsored a conference, 

“Interdisciplinary Approaches to 

Financial Stability.”

The conference brought together experts and 

practitioners in policy, law, finance, economics, 

computer science, neuroscience, engineering, 

biology, ecology, mathematics, statistics, and 

other disciplines to learn from each other and 

gain fresh insights about financial stability.
62 OFR 2016 Annual Report to Congress

In addition, the OFR sponsors a Research 

Seminar Series for OFR staff members 

to listen to presentations and engage 

in discussion and debate with outside 

experts from government agencies, 

academic institutions, and international 

organizations. More than 30 outside 

experts appeared at these seminars 

during the fiscal year. Titles included: 

"Sovereign Debt Default and Debt 

Ownership: Domestic Debt as 

a Commitment Device for Debt 

Repayment"

"Contagion in the Credit Default 

Swap Market"

"Dynamic Interpretation of 

Emerging Systemic Risks"

"Liquidity Regulation and 

Unintended Financial Transformation 

in China"

"Market Dominance and Information 

Propagation in Bond and CDS 

Interdealer Networks"

Staff members from the OFR Data 

Center also collaborated at domestic and 

international events during the year in 

the United States and around the world. 

For example, in May, the OFR Deputy 

Director and Chief Data Officer participated on a chief data officer panel at the 

North American Financial Information 

Summit in New York City. He also spoke 

on, “Data Strategy, Governance and 

Company Structure,” and served as a 

panelist in November in New York City at 

the Standards and Regulation conference 

of the Society for Worldwide Interbank 

Financial Telecommunication Institute.

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Financial Research Advisory 

Committee

The Financial Research Advisory 

Committee, organized in 2012 under the 

Federal Advisory Committee Act, has 29 

members who are experts and practitioners in the fields related to the OFR 

mission.

The advisory committee met twice 

in FY 2016. In February, the panel 

met in the historic Cash Room at the 

U.S. Department of the Treasury and 

discussed OFR programs on monitors, 

central counterparties, data scope, data 

quality, data accessibility, stress testing, 

market structure, and risks in financial 

institutions.

In late July, the committee met at the 

Federal Reserve Bank of New York and 

discussed the OFR’s latest financial 

stability assessment, shadow banking, 

the research agenda of the OFR stress 

testing program, and projects of the 

OFR’s data programs.

The committee has three subcommittees: (1) Research, (2) Data and 

Technology, and (3) Financial Services 

and Risk Management. The subcommittees develop proposals for the full 

committee to consider recommending to 

the OFR.

Several working groups have also been 

established to address topics of particular relevance to the OFR, including 

financial innovation, global vulnerabilities, and funding and market liquidity.

During the meeting in July, the 

committee's Government-sponsored 

Enterprise Working Group and Liquidity 

Working Group each delivered a 
Meeting Our Mission 63

FY 2016 OFR Global Collaboration

The OFR Deputy Director and Chief 

Data Officer in the Data Center chaired 

a panel discussion on “Capital Market 

Data Harmonisation and Sharing at the 

EU and Global Levels” at the Eurofi 

Financial Forum in Bratislava, Slovakia, on 

September 9, 2016. 

The panel discussed gaps and 

inconsistencies in global data about capital 

markets. It also reviewed progress in global 

data sharing and implementing global data 

standards, identifiers, and repositories. 

Panelists included representatives of the 

European Central Bank, the Bank of Italy, 

the International Organization of Securities 

Commissioners, the Society for Worldwide 

Interbank Financial Telecommunication 

(SWIFT), and the Depository Trust & 

Clearing Corporation.

After completing a third and final year as 

Chairman of the Regulatory Oversight 

Committee that oversees the Global 

Legal Entity Identifier System, the OFR’s 

Chief Counsel continues to serve on the 

Executive Committee of that body. Several 

other OFR staff experts also contribute to 

its work.

In April 2016, Director Berner participated 

in a panel at the Eurofi High Level Seminar 

in Amsterdam on “Repo and Market 

Making: What Trends and Possible Actions 

in the Current Regulatory Context?”

The OFR Director participated in a panel at 

a European Systemic Risk Board conference 

in June 2016 on the macroprudential use of 

margins and haircuts. 

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The OFR’s Associate Director for Data 

Strategy and Standards sits on the board 

of the Accredited Standards Committee 

X9, an organization that develops financial 

data standards. The X9 Board of Directors 

is the U.S. voting body on financial data 

standards in the International Organization 

of Standards (ISO). A senior standards 

specialist from the OFR chairs X9’s 

securities subcommittee, which develops 

U.S. standards and promotes them to ISO 

for global use. 

Working on behalf of the Basel Committee 

on Banking Supervision, a liquidity stress 

testing working group led by the Associate 

Director for Policy Studies in the OFR’s 

Research and Analysis Center electronically 

published a paper in November 2015 for 

the Bank for International Settlements 

examining ways to improve bank 

supervisors’ stress tests. 

A senior OFR researcher serves on the 

Data Experts Group established by the 

international Financial Stability Board. 

The group issued a report in November 

2015 citing data elements that regulators 

should collect for a clearer view of 

securities financing transactions. The data 

aggregated across jurisdictions will help 

market monitoring and improve analysis of 

potential vulnerabilities.
64 OFR 2016 Annual Report to Congress

presentation to the full committee and 

the OFR. The presentations are on the 

OFR website, www.financialresearch.gov.

Global Counterparts

The worldwide impact of events overseas 

during the fiscal year, such as the United 

Kingdom’s “Brexit” vote to leave the 

European Union and sharp declines in 

the Chinese stock market, served as 

the latest reminders that the economy 

is global and the OFR must collaborate 

on a global scale to promote financial 

stability. 

The OFR serves in leadership roles 

in international groups dealing with 

financial stability issues and standards. 

OFR officials exchange ideas with their 

colleagues in other countries about best 

■	

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practices and cross-border problems 

and potential solutions. They also work 

together on breaking down the barriers 

to more effective data standards and 

appropriate data sharing needed for 

a global view of threats to financial 

stability.

In FY 2016, we also completed work in 

on a memorandum of understanding on 

data sharing with the Bank of England.

In addition, three senior staff members in 

the OFR Data Center continued to serve 

on the Working Group for Harmonization 

of Over-the-Counter Derivatives Data 

Elements, established by the Committee 

on Payments and Market Infrastructures 

– International Organization of Securities 

Commissions, known collectively as 

CPMI-IOSCO. 

Global Organizations and Development Efforts of the OFR

Committee on Payments 

and Market Infrastructures – 

International Organization of 

Securities Commissions Data 

Harmonization Working Group

›	 Unique Product Identifier

›	 Unique Transaction Identifier

›	 Critical Data Elements

›	 Enterprise Data Management 

Council

Financial Industry Business 

Ontology (FIBO) Loans & 

Mortgages

›	 FIBO Securities & Equities

›	 FIBO Vocabulary

Global Legal Entity Identifier 

(LEI) System

›	 LEI Regulatory Oversight 

Committee

International Organization 

for Standardization (ISO): 

via Accredited Standards 

Committee X9 Inc. 

›	 ISO 6166: International 

Securities Identification 

Numbering System

›	 ISO 10962: Classification of 

Financial Instruments

›	 ISO 20022: Universal 

Financial Industry Message 

Scheme

›	 ISO 17442: Legal Entity 

Identifier 

Mortgage Industry Standards 

Maintenance Organization
Meeting Our Mission 65

The working group is developing the 

unique product identifier, unique transaction identifier, and other standards for 

critical data elements.

The transaction identifier will help in 

the matching of trades and preventing 

duplicate reporting when aggregating 

information among multiple trade 

repositories in multiple jurisdictions. The 

working group is scheduled to release its 

final consultative report on the transaction identifier in late 2016.

The product identifier will allow for 

unique identification of products, 

better data aggregation, and analysis of 

potential asset-specific risks. The group 

published its second consultative report 

on the product identifier in mid-August 

and is requesting public feedback. 

The OFR is also co-chairing a 

CPMI-IOSCO harmonization group 

working on standards for critical data 

elements. That work has prioritized 

standardization for 86 other data 

elements important for combining 

and analyzing data, such as settlement 

methods, valuation dates, and notional 

amounts.

The first 14 elements in that group have 

been standardized. The second batch 

of 27 data elements representing dates, 

times, identifiers, and other information 

is ready to distribute to industry for 

comment. 

Work is continuing on the remaining 

elements, and the subgroup, co-led by 

the OFR, is developing a governance 

infrastructure and collaborating with ISO.

Transparency and 

Accountability

The OFR promotes transparency 

and accountability by engaging with 

Congressional committees with oversight 

of the Office; responding to information 

requests from members of Congress 

and their staffs; answering audit 

requests, including from the Government 

Accountability Office; and making the 

work of the Office accessible to the 

public through media outreach, our 

website, and social media.

The work of the OFR continues to be 

cited as authoritative and enlightening 

among policymakers, industry participants, and academia.

The OFR produces quarterly reports 

to Congress as required by the 

Consolidated Appropriations acts of 

2014, 2015, and 2016. The reports 

describe the OFR’s use of funds, staffing 

levels, and actions to achieve its goals 

and objectives. The report also includes 

measures of performance.

The OFR is committed to keeping the 

public informed of its work and progress. 

The OFR is aware that transparency is 

essential to demonstrate to all Americans 

the importance of its work and its 

mission of promoting financial stability.

One way the OFR remains transparent is 

by reaching out to the news media on a 

routine basis and keeping members of 

the media informed about OFR products 

and progress. For example, in July, the 

OFR held demonstrations of the OFR’s 

U.S. Money Market Fund Monitor for the 

media in New York and Washington, D.C. 
66 OFR 2016 Annual Report to Congress

Also in July, OFR Director Berner hosted 

a media briefing to discuss the OFR’s 

latest financial stability assessment. 

Other important channels for making 

the OFR and its work transparent and 

accessible to the public are our website 

at financialresearch.gov and the OFR 

Twitter site. The website displays a 

broad array of OFR information and 

products, including all of our papers 

series, speeches, reports, monitors, 

press releases, conference details, and 

blogs from the Director and other senior 

managers. In FY 2016, we added short 

biographies of our researchers and 

associate directors and descriptions of 

the eight OFR programs.

On our twitter site, we highlight OFR 

products, post incisive charts, and 

notify viewers about the Director’s latest 

speeches.

Another way we notify the public about 

new OFR work is by sending e-mail alerts 

to subscribers who have signed up for 

the alerts on our website. The number 

of subscribers has grown exponentially 

in recent years, nearly tripling since we 

launched our current website in February 

2015. In FY 2016 alone, the number of 

subscribers climbed from about 13,000 

to more than 23,000, an increase of 77 

percent.

FYs 2015-19 Strategic Plan 

The OFR’s mission is to promote financial stability by delivering high-quality financial data, standards, 

and analysis for the Financial Stability Oversight Council and the public.

Goal: The OFR is an essential 

source of data and analysis for 

monitoring threats to financial 

stability.

Goal: Standards that improve 

the quality and utility of 

financial data are identified 

and adopted.

Goal: Leading-edge research 

improves financial stability 

monitoring and the scope and 

quality of financial data, and informs 

policy and risk management.

■	 The OFR’s monitoring tools and 

analyses are widely used and 

critical to assessing financial 

stability. 

■	 Data used to monitor financial 

stability are comprehensive, 

reliable, and accessible to policymakers and the public through the 

OFR.

■	 Data providers and the public 

trust, acknowledge, and recognize 

that OFR data are protected and 

secure.

■	 Recognition of the need for 

standards by policymakers 

and industry. 

■	 The OFR is the source of 

expert knowledge needed 

to develop and implement 

types and formats of data 

reported and collected.

■	 Financial data standards 

that create efficiencies and 

facilitate analysis are widely 

used.

■	 The OFR is the recognized center 

for objective, innovative research on 

financial stability.

■	 OFR research is widely cited and 

used to improve policymaking, risk 

management, financial stability, and 

the scope and quality of financial 

data.

Strategy and 

Performance

During FY 2016, we continued to execute 

our FYs 2015-19 Strategic Plan. This 
Meeting Our Mission 67

five-year strategic plan and groundwork for developing and rolling out our 

programmatic approach give our staff 

members a clear framework for achieving 

our mission and guide our work in 

producing value for stakeholders.

During our planning for executing the 

OFR programs, we are identifying our 

needs for skills and staffing to accomplish program objectives, and we 

are incorporating the results into our 

workforce plan. 

As we follow our strategic plan through 

FY 2019, we remain mindful that the plan 

is not set in stone and must be flexible to 

adjust to changes in circumstances, such 

as the development of the programmatic 

approach.

Human Resources

Workforce Planning and 

Retention

Establishing and sustaining the OFR as 

a world-class workplace remains the 

most important human capital goal. To 

achieve its mission, the OFR must build 

and maintain a workforce that is diverse 

and highly skilled. 

During FY 2016, the OFR aligned its 

organizational structure to better 

support our strategic plan and enhanced 

its tools for recruitment, retention, and 

workplace flexibilities to attract and 

retain high-quality employees.

We conducted a high-level organizational needs assessment and workforce 

planning exercise to compare the 

current workforce to our future needs 

for meeting the mission. The OFR’s 

leadership team continues to focus on 

functions and positions within each area 

and on promoting collaboration and 

teamwork. 

The OFR has three centers — the Data 

Center, the Technology Center, and the 

Research and Analysis Center — each 

headed by a Deputy Director. The senior 

management team is the Director of 

the OFR, the Chief of Staff, the Deputy 

Directors of the three centers, and the 

Chiefs of External Affairs, Operations, 

and Legal. Most OFR employees 

are based in the Washington, D.C., 

headquarters. An office in New York City 

supports interactions with the financial 

community. At the end of FY 2016, the 

OFR had 214 employees (not including 

contractors, reimbursable, and detailed 

staff members). 

In FY 2016, the senior management 

team made high priorities of filling 

the remaining mid-level management 

positions and building teams to deliver 

value to stakeholders. The OFR’s success 

relies on teamwork. OFR leaders have 

taken steps to improve communications, 

opportunities, and employee engagement and to develop future leaders.

The OFR works to attract and retain 

employees with the highly specialized 

skills needed to meet its strategic goals 

and objectives. Workforce planning 

helps us identify our needs for a flexible 

workforce and distinguish requirements 

for permanent resources from needs for 

temporary employees or contractors.

The OFR uses Title 5 pay flexibilities, 

such as recruitment and retention 

incentives, the student loan repayment 

program, and credit for nonfederal 
68 OFR 2016 Annual Report to Congress

service for leave accrual to more effectively attract and retain staff members 

with critical skills and competencies.

In FY 2016, the OFR focused on 

workforce and succession planning, 

including position description reviews 

and career paths. We also created and 

implemented a mentoring program pilot 

to improve leadership and communication skills, employee development, and 

internal relationships among employees.

Figure 23. OFR Organational Chart

DIRECTOR

Research 

and Analysis

Center

Technology

Center 

Data Strategy 

and Standards

Strategic Data

Support

Data 

Operations

Data

Products

Data and

Business

Architecture

Financial 

Institutions 

and Risk 

Management

Business

Ofce

Current 

Analysis

Financial

Markets

Policy Studies

Research

Product 

Strategy

and Support

Human 

Capital

Other Support

Services

Finance

Application 

Development

Analytic

Systems

Information

Security

IT Strategic

Support

Technology

Strategy

Enterprise

Systems

Data

Center

Treasury’s 

General

Counsel

Chief of Staff

Legal

Industry and 

Academic 

Relations

Communications

Government

Affairs 

External 

Affairs Operations
Meeting Our Mission 69

In addition, the OFR made progress 

during the fiscal year toward delivering 

on commitments and forecasting needs 

to fulfill our vision of a virtual researchand-data community that includes 

visiting scholars who bring their special 

skills to the OFR for limited periods.

Fellowships and detail arrangements 

bring staff members from other agencies 

and external organizations to the OFR 

workforce with needed skills and experience and offer developmental opportunities for employees. Fellowships and 

work details also foster collaboration with 

other organizations that have research 

and-data-related missions, such as FSOC 

member agencies. 

The OFR supports training and development for all employees. Access to 

training creates a culture of learning 

within the OFR and helps employees 

contribute to the OFR’s mission. 

Employee development through training 

helps the OFR retain and motivate its 

diverse and skilled employees to accomplish its mission and meet its goals. 

Another way we emphasized the value of 

our workforce in FY 2016 was by developing and implementing an OFR recognition program to highlight the achievements of our staff members and their 

contributions to the organization.

OFR Benefits

The OFR strives to recruit and retain 

top-notch talent; respond to issues 

raised by employees; be a responsible 

steward of funds; and maintain comparability with federal financial regulators and 

other government organizations covered 

by the Financial Institutions Reform, 

Recovery, and Enforcement Act (FIRREA). 

Section 152(d)(3) of the Dodd-Frank Act 

requires the OFR to “seek to maintain 

comparability regarding compensation 

and benefits” with FIRREA agencies. 

The OFR faces a challenge in attracting 

and retaining diverse talent because of 

competition from businesses, academic 

institutions, FIRREA agencies, and 

non-FIRREA financial regulators for 

prospective candidates with the same 

specialized skills. The OFR participates 

in the FIRREA comparability survey and 

benchmarks salary data and benefits. 

In addition, the OFR has workforce 

flexibility programs to help recruit, retain, 

and develop a skilled workforce by 

further encouraging employee productivity and wellness. 

The OFR provides leave, telework, and 

alternative work schedules that allow 

employees to balance work requirements 

with family needs. In addition, after a 

2015 Supreme Court ruling mandated 

states to issue and recognize same-sex 

marriage licenses, federal benefits rules 

changed to help ensure the federal 

government is a model employer for 

diversity, inclusion, and equality.
70 OFR 2016 Annual Report to Congress

Budget

Since 2012, the OFR has collected 

semiannual assessments from bank 

holding companies with total consolidated assets of $50 billion or more and 

nonbank financial companies supervised 

by the Board of Governors of the Federal 

Reserve System. In the most recent 

assessment (September 2016), the fee 

rate was about $2,300 per $1 billion of 

assets held by the assessed companies. 

As the OFR grows, we are continuing 

to manage expenditures to help 

ensure we closely tie all spending 

to our strategic plan objectives and 

reflect good stewardship of funds. The 

OFR continues to use reimbursable 

administrative support services from 

the U.S. Department of the Treasury’s 

Departmental Offices, personnel 

benefits services through the Office of 

the Comptroller of the Currency, and 

human resources and procurement 

services from the Bureau of the Fiscal 

Service’s Administrative Resource Center. 

Use of these services can be more 

efficient than if the OFR were to provide 

them on its own.

In FY 2016, the OFR spent about $96 

million (see Figure 24). Our estimated 

budget for FY 2017 is $101 million. OFR 

budget details appear annually in the 

President’s Budget proposal.

Figure 24. OFR Funds Obligated in Fiscal Year (FY) 2016, by Quarter ($ thousands)

Q1 Q2 Q3 Q4

Compensation 8,942 7,765 7,758 7,763

Benefits 2,535 2,726 3,035 2,735

Labor Total 11,477 10,491 10,793 10,498

Travel 155 117 166 115

Communications and Utilities 0 2 0 0

Printing and Reproduction 1 4 0 6

Other Services* 10,239 3,297 13,896 9,965

Supplies and Materials 1,584 2,070 2,484 3,573

Equipment 0 754 534 3,235

Grants 9 9- 0 900

Nonlabor Total 11,988 6,234 17,080 17,794

TOTAL $23,465 $16,725 $27,873 $28,292

* Other services include rent and administrative support to human resources, conferences and events, facilities, and 

procurement

Source: OFR analysis
Meeting Our Mission 71

Information 

Technology

Information Security

One of the OFR’s top priorities is 

safeguarding sensitive information. The 

OFR analytical environment (OFRAE) was 

built to securely support large amounts 

of data. This support includes creation, 

collection, use, processing, storage, 

maintenance, dissemination, disclosure, and disposal of data. The OFRAE 

contains information technology (IT) 

systems and tools to conduct analysis on 

information stored by the OFR. 

The OFR continues to cultivate a strong 

security and privacy awareness culture. 

As required by statute, all employees 

with access to nonpublic data are subject 

to post-employment restrictions to help 

ensure data security. 

The OFR follows applicable federal 

regulations, directives, and best 

practices such as the Federal Information 

Security Management Act of 2014, OMB 

Circular A-130, NIST Federal Information 

Processing Standards (FIPS), and NIST 

Special Publication 800.

The OFR’s information security program 

works to ensure that the analytic environment has effective security controls and 

procedures that match the level of risk 

posed by the information systems, tools, 

and data the OFR holds. 

To safeguard against breaches of confidentiality, integrity, and availability of 

information within the OFRAE, the OFR 

performs a security assessment and 

accreditation process before authorizing 

an IT system to support information. 

All IT systems in the OFRAE passed 

a triennial certification and accreditation process at the end of FY 2016. 

The OFR is currently working toward 

implementing the U.S. Department 

of Homeland Security’s Continuous 

Diagnostics and Mitigation program and 

Einstein 3 Accelerated security services 

within the OFRAE. 

Information processed, stored, and transmitted within the OFRAE must receive 

a data classification level, which follows 

a documented process that begins with 

the identification and categorization 

of data in accordance with NIST FIPS 

Publication 199, (Standards for Security 

Categorization of Federal Information 

and Information Systems). The process 

defines security controls and associated 

handling requirements to help ensure 

data are kept secure throughout their 

lifecycle. 
72 OFR 2016 Annual Report to Congress

Security Assessment Steps

Our security assessment is in accordance with 4. Independently assess the effectiveness 

NIST Special Publication 800-37 (Guide for of the implemented security controls in 

Applying the Risk Management Framework to accordance with NIST SP 800-53A Revision 

4 (Assessing Security and Privacy Controls Federal Information Systems). The assessment in Federal Information Systems and follows these steps: Organizations) to help ensure the security 

1. Categorize the type of information to be controls are adequately functioning.

processed, transmitted, or stored within the 5. If all identified security controls pass IT system by performing a comprehensive assessment, present security assessment impact-level assessment according to NIST report to the designated authorizing official Federal Information Processing Standard for final decision on whether to grant the (FIPS) Publication 199 (Standards for Security authorization to operate the IT system. Categorization of Federal Information and 

Information Systems). 6. Load information into the IT system if 

authorization to operate is granted. 2. Select applicable security controls from NIST After the information is loaded, SP 800-53 Revision 4 (Security and Privacy continuously monitor, assess (internally Controls for Federal Information Systems and independently), and maintain security and Organizations) and identify security posture while in production. The IT system controls based on organizational need to is decommissioned when it is no longer reduce risk to an acceptable level. needed or unable to maintain adequate 

3. Implement physical, technical, and security posture.

administrative security controls for the IT 

system.

The OFR reviews the classification 

process at multiple levels to help ensure 

accurate FIPS categorization, including 

an assessment to identify personally 

identifiable information and risk to 

personal privacy. After an OFR data 

classification for a dataset is determined, the dataset is brought into the 

environment according to a process with 

multiple layers of security controls.

Once information is loaded into an 

authorized OFRAE IT system, OFR users 

must request permission for access. 

Requests are reviewed at multiple levels 

to verify a valid need for access and 

confirm that access adheres to terms 

of applicable agreements related to 

the information. Information access is 

subject to periodic auditing and granted 

only on a per-user basis. Access control 

allows security groups and policies to be 

applied at a detailed level, ensuring a 

high degree of oversight.

Access to the analytic environment 

is managed through documented 

procedures and granted on a need-toknow basis. Special security training 

is required for elevated privileges in 

accordance with NIST SP 800-16 Revision 

1 (A Role-Based Model for Federal 

Information Technology/Cybersecurity 

Training).
Meeting Our Mission 73

All of these safeguards are overlaid with 

an extensive training program for users. 

The OFR continues to strengthen its 

privacy program operations by developing a series of internal procedures and 

guidance for OFR employees handling 

personally identifiable information and 

building a culture that promotes information privacy through transparency, 

accountability, and efficiency.

As a key part of our information security 

program, the privacy program oversees 

the safeguarding of personally identifiable information, including its appropriate collection, use, maintenance, 

dissemination, and destruction.

The OFR recognizes its responsibility 

to safeguard data collected and used 

in support of its mission. Appropriate 

management of all data ensures that the 

OFR remains an essential source of data 

and analysis for monitoring threats to 

financial stability.

IT Projects

The OFR Technology Center spent 

much of FYs 2013-15 deploying the 

core analytic and nonanalytic IT 

systems for the OFR. During FY 2016, 

the Technology Center worked on 

expanding those systems to meet the 

evolving objectives of the OFR.

Analytic Systems

The OFR’s analytic environment 

comprises several distinct platforms. 

Combined, the systems have 50 

terabytes of memory, 2,000 core processors, and 7 petabytes of storage. 

Before FY 2016, systems users needed a 

high degree of technical knowledge to 

leverage the full power of the systems.

In FY 2016, the Technology Center 

deployed an enhanced architecture that 

allows users to run most analytic tools on 

any underlying platform and includes an 

interface that makes the system easier 

to use. End users of all skill levels can 

now take advantage of the full power of 

the OFR’s analytic systems while using 

their most familiar analytic tools. System 

usage has increased by 350 percent.

Collaboration and Coordination 

Systems

In conjunction with other OFR divisions, 

the Technology Center completed 

implementation in FY 2016 of the OFR’s 

internal collaboration and coordination systems. This collection of systems 

provides project and portfolio management, customer relationship management, and internal SharePoint-based 

collaboration. The collection also 

includes the OFR Knowledge Catalog 

and its metadata repository. Extensive 

process automation was completed and 

will continue to be expanded.

Participation in Government 

Initiatives

As an office within the Department of 

the Treasury, the OFR participates in the 

Department’s implementation of the 

Federal IT Acquisition Reform Act and 

complies with all relevant information 

technology reporting requirements.
74 OFR 2016 Annual Report to Congress

Central Counterparties Data Accessibility Data 

Quality Data Scope Market Structure Monitors 

Risks in Financial Institutions Stress Tests Data 

Accessibility Data Quality Data Scope Market 

Structure Monitors Risks in Financial Institutions 

Stress Tests Central Counterparties Data Quality 

Central Counterparties Data Quality Data Scope 

Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties 

Data Accessibility Data Scope Market Structure 

Monitors Risks in Financial Institutions Stress 

Tests Central Counterparties Data Accessibility 

Data Quality Data Scope Market Structure 

Monitors Risks in Financial Institutions Stress Tests 

Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties 

Data Accessibility Data Quality Market Structure 

Monitors Risks in Financial Institutions Stress Tests 

Central Counterparties Data Accessibility Data 

Scope Market Structure Monitors Risks in Financial 

Institutions Stress Tests Central Counterparties 

Data Accessibility Data Scope Market Structure 

Monitors Risks in Risks in Financial Institutions 

Stress Tests Central Counterparties Data Quality 

Data Scope Market Structure Monitors Risks 

in Financial Institutions Stress Tests Central 

Counterparties Data Accessibility Data Scope 

Market Structure Monitors Risks in Financial 

Institutions Stress Tests 

ounterparties Data 

ibility Data Quality 

e Market Structure 

rs Risks in Financial 

tutions Stress Tests 

a Accessibility Data 

Data Scope Market 

 Monitors Risks in 

l Institutions Stress 

ntral Counterparties 

ata Quality Central 

ounterparties Data 

Data Scope Market 

 Monitors Risks in 

l Institutions Stress 

ntral Counterparties 

a Accessibility Data 

e Market Structure 

rs Risks in Financial 

tutions Stress Tests 

ounterparties Data 

ibility Data Quality 

e Market Structure 

rs Risks in Financial 

tutions Stress Tests 

ounterparties Data 

sibility Data Scope 

Structure Monitors 

Financial Institutions 

Stress Tests Central 
Looking Ahead 75

LOOKING AHEAD

Our programmatic approach and its eight initial 

programs form the framework for the ongoing pursuit 

of our mission.

In the past year, we have built the governance for this 

framework while we worked on a parallel track on the 

important research, analysis, and data-related initiatives described in this report.

As we noted, we have made a lot of progress, but much more 

work remains.

Some of the key projects we are pursuing next year by program 

are:

■	 Data Accessibility – Build a prototype of a metadata 

repository that will become the premier catalog of financial 

data for regulation and policymaking and link it to such 

repositories at other regulatory agencies.

■	 Data Quality – Publish a white paper for public comment 

about how we plan to develop and make available a 

financial instrument reference database — envisioned as a 

widely adopted, free standard.

■	 Data Scope – Launch a rulemaking process to create 

permanent data collections on bilateral repurchase agreements and securities lending markets. Continue to participate with the Federal Reserve in a project to explore 

possible alternatives to a set of interest rate benchmarks 

formerly known as the London Interbank Offered Rate or 

LIBOR.

■	 Central Counterparties – Analyze and publish reports on 

potential risks to financial stability and data gaps related to 

central clearing by CCPs.
76 OFR 2016 Annual Report to Congress

Our Future Direction

Our strategic plan contains eight high-level guideposts for 

the OFR’s future direction: 

1. Be a trusted partner among FSOC agencies in 

efficiently filling critical gaps in financial data, 

standardizing essential data, and making them appropriately and securely available through sharing.

2. Continue to support the FSOC, as mandated by the 

Dodd-Frank Act. 

3. Be a trusted and objective source of data and analysis 

by consistently and routinely providing valuable offerings effectively and efficiently to stakeholders. 

4. Publish rules that promote the standardization of 

data to improve their quality and reduce regulatory 

reporting burdens.

5. Work through OFR programs to analyze and monitor 

the biggest risks to U.S. financial stability, homegrown 

and global.

6. Promote comprehensive analysis and monitoring of 

vulnerabilities and their implications for systemwide 

resilience, including low-impact vulnerabilities that, 

linked together, can add up to a vulnerability larger 

than the sum of its parts. 

7. Analyze a wide range of financial stability topics for 

the benefit of OFR stakeholders to promote understanding of financial stability issues and to inform and 

support policy decisions. 

8. Maintain strong working relationships with regulatory 

bodies, Congress, industry, the academic community, 

and the public.

■	 Market Structure – Partner with 

the SEC and CFTC to analyze 

the interplay among the markets 

supervised by the two agencies. 

This type of analysis could enhance 

market oversight and financial 

stability monitoring by facilitating 

early detection of cross-market 

behavior that may disrupt markets 

and by aiding in forensic analysis 

and enforcement after a market 

disruption.

Monitors – Continue to improve our 

Financial Stability Monitor and U.S. 

Money Market Fund Monitor, and 

develop and make other monitors 

public as appropriate.

Risks in Financial Institutions – 

Expand our analytical capacity, 

tools, and metrics for assessing 

cybersecurity risks.

Stress Testing – Analyze and 

evaluate the Federal Reserve's stress 

tests using data newly acquired 

from the Federal Reserve. Make the 

results of that analysis public.

We are also continuing to explore risks 

posed by shadow banking, work that 

cuts across our programs. Our shadow 

banking analysis pays particular attention 

to risks in money market funds; risks in 

similar funds and investment pools; risks 

of fire sales and runs in secured funding 

markets, such as repurchase agreements 

and securities lending transactions; and 

risks from nonbanks that extend credit.

■	

■	

■	

OFFICE OF

FINANCIAL

RESEARCH

FINANCIALRESEARCH.gov