OFFICE OF FINANCIAL RESEARCH

ANNUAL REPORT 

TO CONGRESS 2017

ANALYSIS OF THREATS 

TO THE FINANCIAL 

STABILITY OF THE 

UNITED STATES KEY 

FINDINGS FROM 

RESEARCH AND 

ANALYSIS OF THE 

FINANCIAL SYSTEM 

STATUS OF THE 

EFFORTS IN MEETING 

ITS MISSION
2 2017 | OFR Annual Report to Congress
Summary i

FROM THE DIRECTOR

I am pleased to present this 2017 Annual Report to Congress. It fulfills our statutory requirement to assess the state of the United States financial system, 

including analyzing potential threats to financial stability, documenting our 

progress in meeting our mission, and describing our key findings.

We assess threats to financial stability by weighing vulnerabilities in the financial system against 

its resilience. Our overall risk assessment is unchanged from last year: Threats to financial stability 

are moderate. But underneath that assessment are changes in the balance between financial-system vulnerabilities and resilience.

We judge that three vulnerabilities are newly important: (1) those arising from cybersecurity incidents; (2) obstacles to resolving large, complex financial institutions; and (3) those arising from 

changes in financial market structure.

However, we also judge that the system’s resilience has improved over the past year, as government officials and market participants continue to implement efforts to enhance resilience 

globally.

Our 2017 Financial Stability Report complements this annual report with a more deeply analytical 

assessment of threats to financial stability.

These reports and the ones we published previously reflect the views of the OFR, but we 

continue to benefit from input from and collaboration with the member organizations of the 

Financial Stability Oversight Council and their staffs.

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. Our collaboration includes interaction with our Financial Research Advisory Committee and our domestic 

and global counterparts. 

Such input and collaboration have facilitated the progress we’ve made during the year toward 

meeting our mission. For example:

■	 In collaboration with the Federal Reserve, we advanced plans to begin collecting data on 

bilateral repurchase agreements and to publish new reference rates that are alternatives to 

LIBOR.

■	 We developed new tools to assess and monitor vulnerabilities and resilience in the financial 

system. Our Financial System Vulnerabilities Monitor and Financial Stress Index expand the 

risk-assessment toolkit for the benefit of officials and the public.
ii 2017 | OFR Annual Report to Congress

Richard Berner

Director, Office of Financial Research

■	 We evaluated alternative methodologies to set regulatory thresholds for U.S. banks based 

on risk rather than size alone.

■	 We assessed resilience in central clearing counterparties. 

Over the past six years, policymakers globally have increased financial-system resilience by 

improving capital and liquidity, and performing regular stress tests at banking firms; instituting 

new resolution regimes to restore market discipline; and strengthening derivatives markets. 

Now is an appropriate time to take stock of whether such reforms effectively balance the vibrancy 

of the financial system with its resilience. The first three reports from the Treasury Department 

on the Executive Order on Core Principles for Regulating the United States Financial System are 

important steps in that stocktaking, and the OFR stands ready to deploy our data and analytical 

tools to evaluate that balance in support of the effort. 

Likewise, over the past six years, the OFR has filled gaps in our understanding of the functioning 

of the financial system both in normal and stressful times. And we have filled gaps in financial 

data and taken steps to improve their quality and accessibility.

Now is an appropriate time to take stock of the OFR as an organization — one that started with 

a handful of people when I arrived in 2011, and must effectively balance achieving an extraordinarily broad mission with efficiency and agility. Over the past two years, we have embarked on 

that path through initiatives to reconfigure and streamline our functions. I am convinced we can 

do that while maintaining the objectivity, integrity, and quality that are hallmarks of our work. 

During nearly five 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. 

Although I will be leaving the OFR at year end, I am confident that the OFR staff will keep that 

passion burning and strive as “One OFR” to build on the progress we have achieved together 

toward a strong and vibrant organization. This year’s accomplishments demonstrate that teamwork brings success, and OFR team members will continue to work together and collaborate with 

our stakeholders to produce outstanding results.
CONTENTS

FROM THE DIRECTOR

SUMMARY 1

ANALYSIS

Analysis of Threats to the Financial Stability 

of the United States 5

Financial Stability Threats 6

Financial Stability Assessment 11

Financial System Vulnerabilities Monitor 12

Financial Stress Index 18 

RESEARCH

Key Findings from the OFR’s Research and Analysis 

of the Financial System 21

Network Analysis to Identify Cybersecurity and Operational Risk 21

Reducing Regulatory Reporting Burdens 24

LIBOR Alternative 27 

Legal Entity Identifier 29

Assessing Systemic Importance of Banks 32

Financial Data Services Initiatives 34

Key Findings from 2017 Research Papers 35

MISSION

Status of the Efforts of the OFR in Meeting 

Its Mission 39

Support of Key Stakeholders 40 

Collaboration 44 

Organization, Staffing, and Offices 52

Information Technology 55

LOOKING AHEAD 59
ANALYSIS OF 

THREATS TO 

THE FINANCIAL 

STABILITY OF THE 

UNITED STATES 

KEY FINDINGS

FROM THE OFR’S 

RESEARCH AND 

ANALYSIS OF THE

FINANCIAL

SYSTEM STATUS 

OF THE EFFORTS 

OF THE OFR IN 

MEETING ITS 

MISSION
Summary 1

SUMMARY

2017 Annual Report to Congress

We prepared this 2017 Annual Report to Congress 

to meet the statutory requirement for the Office of 

Financial Research (OFR) to prepare and submit a report to 

Congress within 120 days after the end of each fiscal year.

As in previous years, the report’s three main chapters assess the 

state of the United States financial system as required by the 

Dodd-Frank Wall Street Reform and Consumer Protection Act 

of 2010, including:

1 Analysis of Threats to the Financial 

Stability of the United States

2 Key Findings from the OFR's Research 

and Analysis of the Financial System

3 Status of the Efforts of the OFR in 

Meeting Its Mission
2 2017 | OFR Annual Report to Congress

1 Analysis of Threats to the Financial Stability of the 

United States

Overall risks to financial stability remain in the medium range. We reached this 

assessment by weighing the financial system’s resilience against its vulnerabilities.

The system is far more resilient than it was when the financial crisis loomed a decade 

ago, but new vulnerabilities have emerged, including in the last fiscal year.

For example, vulnerabilities from excessive leverage (when resources are low relative 

to investment exposures) could be exploited by risks that are high and rising from the 

potential for a sudden drop in prices of assets in financial markets, particularly stock 

markets and bond markets.

The chapter highlights three key threats to the U.S. financial system:

1. Vulnerabilities to Cybersecurity Incidents

2. Obstacles to Resolving Failing Systemically Important Financial Institutions

3. Structural Changes in Markets and Industry

We chose these key threats based on their potential impact, probability of occurring, 

proximity (could they happen soon?), and the preparedness of industry and government to manage them. 

We also introduce new risk-assessment tools developed by the OFR — our Financial 

System Vulnerabilities Monitor and our Financial Stress Index — and discuss the 

insights from them that contribute to our assessment of financial stability.

We base our overall assessment of U.S. financial stability on many inputs, including an 

evaluation of the six categories of risk in the vulnerabilities monitor and our research, 

analysis, and surveillance of the financial system.

2 Key Findings from the OFR's Research and Analysis of 

the Financial System

This chapter discusses key findings in six areas, plus findings contained in selected 

research papers during the fiscal year:

1. Network Analysis to Identify Cybersecurity Vulnerabilities and Operational 

Risk – Network analysis combined with maps of the financial system populated 

by real-world data may help identify potential systemic vulnerabilities to 

cybersecurity threats.

2. Reducing Regulatory Reporting Burdens – Preliminary OFR analysis indicates 

that examples cited by industry about duplicative, conflicting, and inconsistent 

regulatory reporting requirements merit further exploration.
Summary 3

3. LIBOR Alternative – Alternatives to LIBOR are needed. One milestone for 

achieving a smooth transition to any alternative is that officials and market 

participants must help develop active derivatives markets that use the new rate. 

LIBOR, formerly known as the London Interbank Offered Rate, but now called ICE 

LIBOR (Intercontinental Exchange LIBOR), is an interest rate benchmark.

4. Legal Entity Identifier – To realize the full potential of the Legal Entity Identifier 

(LEI), a financial data standard, strategic regulatory mandating of the LEI is 

required, according to industry advocates. The LEI is like a bar code for precisely 

identifying parties to financial transactions.

5. Assessing the Systemic Importance of Banks – A multifactor approach that 

captures risk is superior to using asset size alone to determine the systemic 

footprint of U.S. banks. The asset-size threshold could subject some large U.S. 

banks with traditional business models to costs for complying with regulations that 

are not aligned with their risks.

6. Financial Data Services Initiatives – The Financial Stability Oversight Council 

(FSOC) and its member agencies could increase efficiency by adopting initiatives 

to facilitate appropriate data sharing and reduce the indirect and potentially 

direct costs of financial data acquisition.

3 

This chapter discusses how we are serving our stakeholders: the FSOC, FSOC 

members, the Treasury Department, Congress, the financial services industry, and 

the public. It also describes our efforts to continue adjusting our focus on meeting 

the needs of those key stakeholders. 

In addition, the chapter discusses our national and international collaboration over 

the past fiscal year, current staffing levels, our budget, and information technology 

projects.

OFR staff experts and leaders participate in a wide variety of events related to financial stability research, data, and analysis. Collaboration with researchers, regulators, 

and industry experts domestically and abroad is crucial to our success. We also receive 

valuable suggestions and recommendations from our Financial Research Advisory 

Committee, a group of 29 experienced professionals with experience in business, 

economics, finance, data science, risk management, and information technology. 

Committee members are drawn from industry, academia, and the policy community.

Our research and data agenda requires advanced and secure information technology tools. We bring large quantities of data into our analytical environment, which 

was designed and built specifically for the OFR to securely support computingintensive work with large datasets. The need to keep these data secure and safeguard against breaches drives much of our security work.
VULNERABILITIES

TO CYBER

SECURITY 

INCIDENTS 

OBSTACLES 

TO RESOLVING 

FAILING 

SYSTEMICALLY 

IMPORTANT 

FINANCIAL

INSTITUTIONS 

STRUCTURAL 

CHANGES IN 

MARKETS AND 

INDUSTRY
Analysis of Threats to Financial Stability 5

Overall risks to financial stability remain in the medium 

range. We reached this assessment by weighing the 

financial system’s resilience against its vulnerabilities. Thanks 

to actions taken after the financial crisis, the system is far 

more resilient than it was when the crisis loomed a decade 

ago, but vulnerabilities have emerged, including in the last 

fiscal year.

Although our overall assessment is moderate, market risks are high and 

rising from the potential for a sudden drop in the prices of assets in financial 

markets, particularly the stock markets and bond markets. Such a decline 

could exploit vulnerabilities from excessive leverage, when resources are 

too low in relation to investment exposures.

The chapter highlights three key threats to the U.S. financial system:

1. Vulnerabilities to Cybersecurity Incidents

2. Obstacles to Resolving Failing Systemically Important Financial 

Institutions

3. Structural Changes in Markets and Industry

We also introduce new risk-assessment tools developed by the OFR — our 

Financial System Vulnerabilities Monitor and our Financial Stress Index — 

and discuss the insights we glean from them about financial stability.

Analysis of Threats to the Financial Stability 

of the United States

ANALYSIS
6 2017 | OFR Annual Report to Congress

The new monitor and index, which are both on the OFR website, 

financialresearch.gov, are part of the OFR’s quantitative monitoring toolkit. They 

signal where potential vulnerabilities might require further investigation. We conduct 

those investigations using a wider set of data, qualitative information, and expert 

analysis. The OFR’s 2017 Financial Stability Report contains a more in-depth analysis 

of the threats and our overall assessment of financial stability.

Financial Stability Threats

Shocks that cause widespread losses or loan defaults can expose underlying vulnerabilities and turn them into threats that can potentially disrupt the financial system with 

adverse consequences for the economy.

We selected the key threats to U.S. financial stability based on their potential impact, 

probability of occurring, probability of happening soon, and the preparedness of 

industry and government to manage them. The key threats are:

1. Vulnerabilities to Cybersecurity Incidents

The financial system is vulnerable to cybersecurity incidents because of its interconnectedness and heavy reliance on information technology.

A large-scale cyberattack, accident, or other cybersecurity incident could disrupt 

the operations of one or more financial companies and markets and spread 

through financial networks and operational connections to the entire system, 

threatening financial stability and the broader economy.

The financial system is an attractive target for cyber thieves and other hackers 

because financial companies manage the nation’s wealth and handle trillions of 

dollars in transactions every day that underlie the U.S. economy.

The hack of consumer information at the consumer credit reporting firm Equifax, 

disclosed in September 2017, highlighted the vulnerability of some financial 

companies and the absence of regulatory guidance on how consumer credit 

reporting companies should manage cybersecurity risks. The attackers reportedly accessed personal information for 145 million Americans, including Social 

Security numbers and driver’s license information.

A cybersecurity incident could pose a financial stability risk if it caused a loss of 

confidence in financial institutions, if it damaged the integrity of consumer financial data, or if the victimized company provided unique services that could not 

easily be replaced.

In such a scenario, customers and other financial companies might sever their 

connections to a victimized company to avoid exposure and protect themselves 

The new monitor 

and index can be 

found on the

OFR website
Analysis of Threats to Financial Stability 7

from losses. They might also sever ties to similar companies for fear they are also 

vulnerable. Finally, they might limit their risks by pulling back from certain types 

of financial activities.

Three factors increase vulnerabilities to cybersecurity incidents for any type of 

company and industry:

1. The open structure of the Internet allows malicious actors to target companies across the globe.

Figure 1. Example of Financial System Network Mapping

Source: OFR analysis

CORPORATE 

BOND

DEALER

NONDEALER

NONDEALER

ALER

TRIPARTY 

REPO

DEALER

DEAL

DEALER

FIRMB

FIRM A

FIRMB

FIRM A

INVESTOR 

(mutual funds)

INVESTOR 

(asset managers)

DEALER

DEALER

CREDIT

DEFAULT

SWAP 

FIRM A

FIRM B

DEALER

CLEARING

BANK

CENTRAL

COUNTERPARTY

DEALER

NONMEMBER

NONMEMBER

NONMEMBER
8 2017 | OFR Annual Report to Congress

2. The availability of encrypted digital currencies or "cryptocurrencies" makes 

evading detection easier for criminals because they can move and hold 

funds under assumed names.

3. Product liability laws do not generally apply to computer software, creating 

potential incentives to rush products to market and fix or "patch" problems 

later, including cybersecurity vulnerabilities.

Financial companies can help protect themselves and the overall system by 

investing in strong defenses and increasing their ability to recover from cybersecurity incidents. Regulators must work with the industry to ensure the resilience of 

the financial system, even if individual companies do not recognize that the benefits of protecting the overall system are worth their cost of increased resilience. 

In the insurance industry, the National Association of Insurance Commissioners 

adopted a model law in October for protecting insurance data from hackers. But 

for the model law to take effect, U.S. states would need to adopt it.

In October 2016, federal banking regulators proposed rules to enhance risk 

management standards to combat cybersecurity threats.

As the OFR researches cybersecurity risks, we analyze past breaches, evaluate 

the effectiveness of regulations and policies, and draw lessons from “tabletop 

exercises” — simulated cybersecurity incidents — industry and regulators hold.

We are also applying network analysis and using detailed datasets to develop 

maps to learn how cybersecurity incidents can spread through the financial 

system (see Network Analysis to Identify Cybersecurity Vulnerabilities and 

Operational Risk). For example, such network analysis could focus on interconnections within markets and how shocks are transmitted — analysis that can be 

applied to shocks from cybersecurity incidents (see Figure 1 for a representative multilayer view of work that could be done on three markets: credit default 

swaps, triparty repurchase agreements, and corporate bonds).

2. Obstacles to Resolving Failing Systemically Important 

Financial Institutions 

Resolution is the process of restructuring or liquidating a failing financial company 

through bankruptcy or regulatory mechanism. The failure of a large, complex 

financial company could transmit distress to other firms and possibly trigger 

another financial crisis.

After the financial crisis of 2007-09, regulators developed important tools for 

resolving failing U.S. bank holding companies that are systemically important, 

but orderly resolution still may be difficult in some scenarios. Tools to enable an 

orderly resolution process for nonbanks are still works in progress.

Tabletop 

exercises

are simulated 

cybersecurity 

incidents industry 

and regulators 

hold
Analysis of Threats to Financial Stability 9

There are two paths for the resolution of a failing systemically important financial institution (SIFI) that is not an insured depository institution. The first path is 

bankruptcy. 

The second path, created by the Dodd-Frank Act, is the “orderly liquidation 

authority” when bankruptcy may not be the best alternative. On the recommendation of regulators and in consultation with the President, the Secretary of the 

Treasury could place the failing SIFI into receivership for the Federal Deposit 

Insurance Corporation (FDIC) to liquidate. The Act created this second path as 

a backstop to the bankruptcy process for the FDIC to address financial stability 

concerns and for better cross-border coordination among regulators.

In some scenarios, the first and second paths have shortcomings for handling the 

failure of the largest and most complex bank holding companies, known as global 

systemically important banks (G-SIBs). For example, if more than one G-SIB was 

failing, the FDIC might not be able to use the orderly liquidation authority to 

restructure the banks and release them from oversight quickly enough to stabilize 

the U.S. financial system.

Some proposals would strengthen bankruptcy provisions for financial companies but also would eliminate orderly liquidation authority. However, obstacles to 

handling a G-SIB failure through the bankruptcy process may remain. For example, the bankruptcy trustee might not have near-immediate access to short-term 

liquidity needed to stabilize the failing company or the cooperation of international regulators.

Finally, tools for successfully resolving systemically important nonbank financial firms are still being developed, despite problems among such firms during 

the crisis, such as the collapse of Lehman Brothers and near-failure of insurer 

American International Group, and the increasing importance of nonbanks such 

as central counterparties (CCPs).

Unlike G-SIBs, CCPs are not required to submit “living wills” to their primary 

federal regulators with plans for their rapid and orderly resolution in the event of 

their material financial distress or failure. CCPs are required to develop recovery 

and orderly wind-down plans for extreme events that could threaten their viability 

and financial strength before insolvency is reached. But CCPs are not subject to 

sanctions if regulators deem their plans unsatisfactory. 

In 2016, the Commodity Futures Trading Commission (CFTC) issued guidance 

requiring more detailed wind-down planning. The Securities and Exchange 

Commission (SEC) is requiring CCPs under its supervision to submit initial plans 

by the end of 2017.
10 2017 | OFR Annual Report to Congress

3. Structural Changes in Markets and Industry

Three aspects of market structure pose threats: (1) lack of substitutability, which is 

the ability to replace essential services if a provider fails or drops that line of business; (2) fragmentation of trading activities through multiple channels and products; and (3) the danger of a difficult transition to a new reference rate to replace 

the London Interbank Offered Rate (LIBOR).

A lack of substitutability is an aspect of market structure that can pose a threat. 

Some markets depend on one or a few financial institutions whose services may 

be difficult to replace under stress. For example, the increasing reliance on a 

single institution for settlement of Treasury securities and related repurchase 

agreements (repos) is a key vulnerability. An interruption in Treasury settlement 

services would disrupt the Treasury market and potentially a range of other 

markets.

Fragmentation in markets can also pose threats. As electronic 

trading has escalated, the number of trading channels has 

grown (see Figure 2). This growth can increase flexibility for risk 

managers who want to hedge by diversifying their risks and 

for corporate treasurers and portfolio managers to reallocate 

assets quickly under stress. But fragmentation also introduces 

risks by reducing liquidity because resources of market makers 

are stretched thinner across more exchanges and products.

Some markets are also becoming more fragmented among 

products, raising concerns about the availability of liquidity 

also becoming more fragmented. 

Another potential threat comes from the transition from LIBOR 

to an alternative. The risks and costs of using LIBOR make the 

move essential, but failure to make a timely and smooth transition could impair the functioning of markets that now rely on 

LIBOR. LIBOR reflects transactions in a shrinking market. Most 

of the responses by traders to the LIBOR survey are based on 

judgment rather than actual trades. LIBOR tracks unsecured 

transactions, which represent a small share of banks’ wholesale 

funding.

The new U.S. benchmark rate, the Secured Overnight Financing 

Rate, will be produced by the Federal Reserve Bank of New 

York in cooperation with the OFR. It will be based on trading activity in repos backed by Treasury securities, not bank 

surveys (see LIBOR Alternative in next chapter).

Figure 2. Market Share by Exchanges 

and Their Affiliates, 1996 and 2016 

(percent)

Nasdaq

Exchange

Chicago Board

Options Exchange

New York

Stock

Exchange

Offexchange

Other

Chicago

Board

Options

Exchange

Nasdaq

Exchange

New York

Stock

Exchange

1996

2016

Source: Muzan Trade and Quote
Analysis of Threats to Financial Stability 11

The Alternative Reference Rates Committee, made up of banks active in the 

derivatives market, informed the process and selected the Secured Overnight 

Financing Rate as its preferred LIBOR alternative. The new rate promises to be 

more reliable.

Despite these improvements, the transition from LIBOR carries additional risks. 

Obtaining widespread market acceptance and reliance could take years. Officials 

and market participants must develop active derivatives markets that use the 

new rate.

Financial Stability Assessment

We base our overall assessment of U.S. financial stability in part on an evaluation of 

the six categories of risk in our new Financial System Vulnerabilities Monitor and on 

our research, analysis, and surveillance of the financial system.

This new monitor improves on and replaces the OFR’s Financial Stability Monitor. 

When we introduced the prototype of the Financial Stability Monitor in 2013, we 

noted that we planned to update and fine tune it. We made improvements in 2014 

and 2015, then began a project in fiscal year (FY) 2017 to make fundamental changes.

The previous version of the monitor combined signals of vulnerability and stress, 

which prevented an accurate assessment of risk.

As its name indicates, the new Financial System Vulnerabilities Monitor gives early 

warning signals of potential vulnerabilities. A vulnerability is a factor that can originate, amplify, or transmit disruptions in the financial system.

When the Financial System Vulnerabilities Monitor shows high or rising vulnerabilities, 

it indicates a high or rising risk of disruptions in the future. Vulnerabilities typically 

lead to additional stress when shocks hit, such as when widespread losses or loan 

defaults strike the financial system. The additional stress can feed a downward cycle.

A second new tool, the OFR Financial Stress Index, is a daily snapshot of current 

stress in global financial markets. Stress can be minor; for example, it can surface in 

a brief period of uncertainty and price volatility in the equity market. Or it can be 

major, like the stress precipitated by the runs on Lehman Brothers and other brokerdealers in 2008. 

The distinction between stress and vulnerabilities means that the two should be 

measured separately. Both of these complementary tools factor into our overall 

assessment that risks to U.S. financial stability remain in the medium range.

A vulnerability is 

a factor that can 

originate, amplify, 

or transmit 

disruptions in the 

financial system
12 2017 | OFR Annual Report to Congress

Financial System 

Vulnerabilities Monitor

The Financial System Vulnerabilities 

Monitor is a heat map of 58 indicators of 

potential vulnerabilities organized into 

six risk categories: (1) macroeconomic, 

(2) market, (3) credit, (4) solvency and 

leverage, (5) funding and liquidity, and (6) 

contagion. These categories reflect key 

types of risks that have contributed to 

financial instability in the past. 

The stress index and vulnerabilities monitor each have a category for credit, but 

the two tools are measuring different 

aspects of the financial system, so the 

same or similar categories or indicators 

are not contradictory. For example, high 

stock valuations generally indicate low 

stress now, but such high valuations can 

be a potential vulnerability for the future.

The new monitor, which we will update 

quarterly, includes a category for 

solvency and leverage that was not in the 

earlier monitor. New underlying indicators provide additional information (see 

Figure 3).

The colors of the heat map mark the 

position of each indicator in its long-term 

range. For example, red signals that a 

potential vulnerability is high relative to 

its past. Orange signals that it is elevated. 

Movement toward red indicates that a 

potential vulnerability is building.

Figure 3. Financial System Vulnerabilities Annual Comparison, Second Quarters of 2016 and 2017

Q2 2016 Q2 2017 Low High

Potential Vulnerability

Solvency/Leverage Risk

Funding/Liquidity Risk

Trading liquidity risk

Funding risk

Financial institution liquidity risk

Financial sector concentration risk

Cross-institution risk

Cross-border contagion risk

Contagion Risk

Financial institution solvency

Financial institution leverage

Credit Risk Household credit risk

Nonfinancial business credit risk

Real economy borrowing levels and terms

Market Risk Valuations/risk premiums

Financial risk-taking/risk appetite

Macroeconomic Risk Inflation risk

Fiscal risk

External balance risk

Note: Data available as of Oct. 4, 2017. 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.

Sources: Bloomberg Finance L.P., Compustat, Federal Financial Institutions Examination Council call reports, Federal Reserve Form 

Y-9C, Haver Analytics, Morningstar, SNL Financial LC, the Volatility Laboratory of the NYU Stern Volatility Institute (https://vlab.stern.

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

Macroeconomic risk

Risk from inflation, 

government borrowing, and 

cross-border financing

Q2

2016

Q2

2017

U.S. core inflation

U.S. consumer inflation expectations

U.S. federal government budget balance/GDP

U.S. federal government debt/GDP

U.S. federal government interest/revenues

External balance risk

U.S. current account balance/GDP

U.S. cross-border financial liabilities/GDP

Inflation risk

Fiscal risk

Macroeconomic risks to U.S. financial 

stability are moderate. The U.S. economy 

continues to expand at a modest pace. 

The current U.S. economic expansion is 

the third longest since 1850. Inflation is 

low, and investors are not expecting 

major changes.

U.S. government debt as a percent of 

gross domestic product (GDP) is at its 

highest level in decades. Very low interest rates are currently mitigating this 

vulnerability because they make debt 

more affordable. 

China’s elevated level of debt hampers 

additional borrowing and is high by 

world standards, although credit growth 

has slowed over the past year. Direct 

U.S. financial claims on China are small 

relative to the size of the U.S. financial 

system, but the Chinese government is 

a major holder of U.S. government debt. 

Indirect exposures through other Asian 

markets and through the global economy 

are more significant. 

Potential negative spillovers still exist 

from Brexit, the United Kingdom’s 

planned exit from the European Union. 

If the exit does not go smoothly, the 

disruptions would most affect U.S. financial institutions with large direct financial 

exposures to the United Kingdom and 

potentially spread to other U.S. financial 

firms and markets.

Market risk

Risk to financial stability from 

movements in asset prices 

Q2

2016

Q2

2017

Valuations/risk premiums

U.S. equity valuations

U.S. Treasury term premium

U.S. corporate bond spread

U.S. mortgage-backed security spread

U.S. house price/rent ratio

U.S. house price/income ratio

U.S. CRE capitalization spread

Financial risk appetite

U.S. bond investor duration

U.S. equity market volatility 

Market risks from a sharp change in the 

prices of assets in financial markets are 

high and rising.

Rising prices and falling risk premiums may leave some markets vulnerable to big changes. Risk premiums are 

returns in excess of returns on risk-free 

investments.

Such market corrections can trigger 

financial instability when the assets are 

held by entities that have excessive 

leverage and rely on short-term debt and 

other liabilities.

Each of our annual reports has highlighted the risk that low volatility in 
14 2017 | OFR Annual Report to Congress

market prices and persistently low 

interest rates may promote excessive 

risk-taking by investors and create future 

vulnerabilities. In 2017, strong earnings 

growth, steady economic growth, and 

increased expectations for a U.S. fiscal 

policy that stimulates economic growth 

have fueled the rise in asset prices. 

Stock market valuations are at historic 

highs, according to several metrics. 

Prices are also elevated in bond markets, 

suppressing yields. Risk premiums for 

corporate bonds have nearly fallen to 

the lowest point since the financial crisis. 

At the same time, long-term interest 

rates in the United States remain low, 

despite a long span of steady economic 

growth, low unemployment, and gradual 

increases in benchmark interest rates by 

the Federal Reserve.

The low rates have increased the risk of 

loss by bond investors if interest rates 

rise, but two factors mitigate the potential systemic risk from rising rates. First, 

investors such as pension funds and 

insurance companies have long-term 

liabilities, including pension obligations 

and life insurance coverage that allow 

them to tolerate any short-term market 

losses on bonds. Second, the Federal 

Reserve has clearly stated its intention to 

raise interest rates gradually.

Credit risk

Risk of borrowers or 

counterparties not meeting 

financial obligations such as 

business loans and mortgages 

Q2

2016

Q2

2017

Household credit risk

U.S. consumer debt/income

U.S. consumer debt/GDP growth

U.S. consumer debt service ratio

U.S. mortgage debt/income

U.S. mortgage debt/GDP growth

U.S. mortgage debt service ratio

Nonfinancial business credit risk

U.S. nonfinancial business debt/GDP

U.S. nonfinancial business debt/GDP growth

U.S. nonfinancial business debt/assets

U.S. nonfinancial business debt/earnings

U.S. nonfinancial business earnings/interest

Real economy borrowing levels and terms

Lending standards for nonfinancial business

Lending standards for residential mortgages

Some measures of credit risk have 

moderated since last year, reflecting 

crosscurrents of positive and negative 

developments. Credit risk from debt 

by nonfinancial corporations remains 

elevated. Nonfinancial corporate debt 

continues to grow, although at a slower 

pace than in 2016. Measures of firms’ 

debt-to-assets and debt-to-earnings 

ratios are red on the monitor heat map.

In addition, the quality of covenants 

may be weakening. Covenants are terms 

in financial contracts meant to protect 

investors. For example, covenants may 

limit a borrower’s total debt or restrict 

business activities. Weaker covenants 

historically accompany buildups of debt 

and may signal lower credit quality. 

However, the growing economy and 

rising profits are reducing the risk of 
Analysis of Threats to Financial Stability 15

defaults. Many companies have rolled 

over their existing debt at lower interest rates and with longer repayment 

timetables.

Household credit risks are rising, but 

appear to be concentrated in the 

nonmortgage segment of the market. 

Total household debt, including mortgages, hit a record $12.8 trillion in the 

second quarter of 2017, surpassing 

its 2008 peak. Mortgage risks remain 

moderate after the drop in such debt 

after the financial crisis. 

Auto loans and student loans bear 

watching. They account for much of the 

recent growth in household debt (see 

Figure 4). Delinquencies of student loans 

have been high since 2012. Auto loan 

delinquencies have declined from their 

post-recession peak in 2011 but have 

been rising since 2015.

Solvency and leverage risk

Risk of reduced ability to 

repay debts or borrow funds

Financial institution solvency

U.S. BHC risk-based capital (median)

U.S. BHC risk-based capital (aggregate)

U.S. commercial bank risk-based capital (median)

U.S. commercial bank risk-based capital (aggregate)

Financial institution leverage

U.S. BHC leverage (median)

U.S. BHC leverage (aggregate)

U.S. commercial bank leverage (median)

U.S. commercial bank leverage (aggregate)

U.S. life insurer leverage (median)

U.S. non-life insurer leverage (median)

Q2

2016

Q2

2017

The failure or near-failure of large financial institutions has been a common 

source of stress during financial crises in 

the past, including the crisis of 2007-09. 

For this reason, the OFR’s new monitor 

includes measures of solvency and 

leverage risk. These measures signal low 

risk in banks.

Large banks have more capital to serve 

as a cushion against losses than before 

the crisis. The eight U.S. G-SIBs have 

significant buffers of capital and liquidity above the minimum required, which 

bolsters their solvency. Bank profits are 

gradually starting to improve as interest rates rise but remain relatively low. 

Return on equity for U.S. G-SIBs has 

been stagnant at about 10 percent, 

compared with 12 percent to 17 percent 

before the crisis. 

Insurance company leverage is moderate. Since the crisis, insurers have used 

less leverage. Leverage is high when 

the company resources needed as a 

buffer against losses are low relative to 

Figure 4. U.S. Nonmortgage Household 

Debt ($ trillions)

0.0

0.8

1.6

2008 2012 2016

Auto

loan

Credit

card

Student

loan

Other

Note: Data as of June 30, 2017. "Other" includes 

consumer finance and retail loans

Sources: Federal Reserve Bank of New York, OFR 

analysis
16 2017 | OFR Annual Report to Congress

investment exposure. Some life insurers make substantial use of derivtives; 

this indicator captures only the current 

market value of these exposures and may 

understate future risks.

Leverage among nonbank broker-dealers, which are not reflected in the 

monitor, deserves monitoring. Most of 

the largest U.S. broker-dealers are affiliated with banks. However, changes in 

bank regulation may fuel an increase in 

broker-dealers not affiliated with banks. 

The largest nonbank broker-dealers — 

each with more than $10 billion in assets 

— have substantially more leverage than 

their bank-affiliated peers. 

Funding and liquidity risk

Risk that investors will lose 

confidence and pull their 

funding from a firm or market 

and market participants won’t 

be able to sell securities 

without creating a downward 

price spiral.

Q2

2016

Q2

2017

TED spread

U.S. financial commercial paper spread

Dealer positions in U.S. Treasuries

Dealer positions in U.S. agency-backed securities

U.S. Treasury bond turnover

U.S. equity turnover

U.S. commercial bank loans/deposits (median)

U.S. commercial bank loans/deposits (aggregate)

U.S. BHC wholesale funding (median)

U.S. BHC wholesale funding (aggregate)

U.S. BHC net stable funding (median)

U.S. BHC net stable funding (aggregate)

Funding risk

Trading liquidity risk

Financial institution liquidity risk

Market liquidity, the ability of a market 

participant to buy or sell an asset in a 

timely manner at relatively low cost, 

remains a concern. Market liquidity is 

vulnerable to the risk of asset fire sales — 

the risk that market participants will not 

be able to sell securities without creating 

a downward spiral in prices.

Funding liquidity (the availability of credit 

to buy assets) is also subject to run risk 

— the risk that investors will lose confidence and pull their funding from a firm.

In the past several years, U.S. G-SIBs 

have steadily increased their reliance on 

"runnable liabilities," liabilities that are 

vulnerable to runs. 

Indicators of market liquidity are mixed. 

Some indicators suggest that conditions 

are moderate, while others suggest lower 

risk. Two measures of market liquidity 

signaled extraordinary stress during the 

crisis but have since eased: 

1. Bid-ask spreads – the difference 

between the average price at which 

customers buy from dealers and the 

average price at which customers sell 

to dealers; and

2. Price-impact measures – the 

price change after a large trade is 

completed.
Analysis of Threats to Financial Stability 17

The Contagion Index and Agent-based Models

In the search for new ways to measure contagion risk, OFR researchers have developed a 

contagion index to assess the potential spillovers 

to the broader financial system when a bank 

defaults. The contagion index has been declining 

in recent years for most G-SIBs (see Figure 5).

The contagion index is not included in the monitor because it can only be calculated since 2013. 

The index combines measures of a bank’s leverage, size, and connectivity.

Contagion Index = Financial Connectivity × Net 

Worth × (Outside Leverage - 1)

Connectivity is measured as the portion of 

a bank’s liabilities held by other financial 

institutions.

OFR researchers also continue to use agentbased models to analyze how risks can spread 

among firms during a crisis. Agent-based 

models simulate behaviors of different types of 

financial firms and the complexity of behavior 

among firms as they react to the actions of other 

firms. These models help us understand the way 

risks propagate across the financial system and 

the impacts of shocks and changes in regulatory 

policies. The OFR cosponsored a conference on 

the topic with the Bank of England and Brandeis 

University in September 2017.

Figure 5. Percent Change in Contagion Scores 

for FY 2016

State Street

Wells Fargo

Citigroup

Morgan Stanley

Goldman Sachs

Bank of America

JPMorgan Chase

Bank of New York

Mellon

-40 -30 -15 0 15 30

Sources: Federal Reserve Form Y-15, OFR analysis

Contagion risk

Risk that stress at a financial 

institution or market spills 

over to others

Q2

2016

Q2

2017

Asset fire-sale risk

U.S. systemic capital shortfall estimate SRISK/GDP

U.S. banking industry concentration

U.S. life insurance industry concentration

U.S. mutual fund industry concentration

U.S. cross-border financial assets/GDP

U.S. bank cross-border claims/total assets

Cross-institution contagion risk

Financial sector concentration risk

Cross-border contagion risk

Contagion risk is the danger that stress 

at a financial institution or market spills 

over to others. OFR research suggests 

that the financial system remains highly 

interconnected. Of the many factors 

contributing to the financial crisis, 

contagion is one of the most difficult to 

measure (see The Contagion Index and 

Agent-based Models).

The monitor includes measures of 

concentration in the financial system. 

Concentration makes the financial industry more vulnerable to the spread of 

disruptions from distress at individual 
18 2017 | OFR Annual Report to Congress

firms. The monitor shows that these 

signals are mixed. Concentration in 

the U.S. mutual fund industry is high. 

Concentration in the U.S. banking industry is moderately elevated; the heights 

reached after the crisis have subsided. 

Concentration in the life insurance industry is low.

The monitor also includes the SRISK 

measure. SRISK — short for systemic risk 

— reflects the capital a firm is expected 

to need to remain solvent during a 

crisis. SRISK and two other metrics offer 

insights on the contribution that individual firms make to systemic risk (see 

Figure 6).

In addition, the monitor now contains an 

index of fire-sale risk, the chance that a 

self-reinforcing cycle will develop when 

liquidations of bank assets push down 

prices in a falling market. This risk has 

also been low in recent years.

Financial Stress Index

The Financial Stress Index is a daily 

market-based snapshot of stress in 

global financial markets. It is constructed 

from 33 financial market indicators. The 

indicators are organized into five categories: (1) credit, (2) equity valuation, (3) 

funding, (4) safe assets, and (5) volatility. 

The index is positive when stress levels 

are above average and negative when 

stress levels are below average.

The index shows that overall stress is 

near its lowest level since the financial 

crisis, primarily because of low volatility. 

However, this low volatility may be leading investors to take big risks, making the 

financial system more fragile and vulnerable to shocks.

The OFR index can be broken down so 

users can view each of the five categories 

separately or in combination. It also can 

be broken down by the region generating the stress.

Analysis of the categories can reveal 

the drivers of financial stress, guiding 

the interpretation of market events by 

cutting through the clutter of market 

chatter. For example, if we examine the 

index during the 2013 “Taper Tantrum” 

event, we find that the index shows 

increased levels of stress in the credit 

and volatility categories (see Figure 7).

The methodology for the index uses a 

dynamic process to account for changing 

relationships among the variables in the 

index. No two stress events are exactly 

the same, and the relative importance of 

drivers of financial stress varies over time. 

Figure 6. Systemic Risk Measures of Joint Distress for the Six 

Largest U.S. Bank Holding Companies (z-scores)

-2

0

2

4

6

2007 2009 2011 2013 2015 2017

Systemic risk

Distress insurance

premium

Conditional 

Value-at-Risk

Note: Equal-weighted average. The six largest 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.

Sources: Bloomberg Finance L.P., the Volatility Laboratory of the NYU Stern 

Volatility Institute, OFR analysis
Analysis of Threats to Financial Stability 19

The OFR’s innovative methodology 

is dynamic but remains accessible to 

policymakers.

The daily frequency of the OFR's index 

improves upon the weekly or monthly 

frequency of other indexes.

Financial stress refers to a breakdown 

in the normal functioning of financial 

markets. High levels of financial stress 

can precede declines in economic activity. These episodes can be severe. For 

example, the OFR index shows stress 

peaking during the financial crisis. 

Policymakers need accurate, clear, and 

timely signals of market stress to effectively manage the effects.

Figure 7. OFR Financial Stress Index - 2013 Taper Tantrum Period

Sources: Bloomberg Financial L.P., Haver Analytics, OFR analysis

OFR Financial Stress Index can be found at

www.financialresearch.gov/financial-stress-index/

Financial stress 

refers to a 

breakdown 

in the normal 

functioning of 

financial markets
SYSTEMIC

IMPORTANCE 

OF BANKS 

CYBERSECURITY

AND OPERATING 

RISKS LEGAL 

ENTITY IDENTIFIER

FINANCIAL DATA

SERVICES 

INITIATIVES 

REDUCING 

REGULATORY

REPORTING 

BURDENS LIBOR

ALTERNATIVE
Key Findings from Research and Analysis 21

RESEARCH

Key Findings from the OFR’s Research and 

Analysis of the Financial System

The OFR has continued to work throughout the year on 

data and research projects to fulfill its mission. This chapter 

describes key findings from our research and analysis. The 

chapter focuses on cybersecurity and operational risk, reducing 

regulatory reporting burdens, an alternative reference rate, the 

Legal Entity Identifier (LEI) data standard, a multifactor approach 

to assessing the systemic importance of banks, and financial 

data services initiatives. The chapter also discusses selected 

findings in our research papers during the fiscal year. 

Network Analysis to Identify Cybersecurity 

and Operational Risk

Cybersecurity incidents and other operational risks are growing threats to 

financial stability. Financial firms are connected through complex, interconnected networks. Disruptions to the operations of a key institution in the 

financial system could be transmitted through these networks and lead to a 

systemic crisis (see Financial Stability Threats).

To understand this threat, officials can combine network analysis with 

maps of the financial system to identify cybersecurity vulnerabilities and 

other operational risks. Networks can be mapped out in a visualization of 

Indicates 

an OFR Key 

Finding
22 2017 | OFR Annual Report to Congress

financial entities such as firms, markets, 

trading desks, financial market utilities 

(nodes), and the connections between 

these entities (links). Network analysis of these connections increases the 

understanding of potential vulnerabilities to shocks and helps in evaluating 

and developing policies to enhance the 

stability and resilience of the financial 

system (see Figure 8).

Financial stability threats 

from cybersecurity 

vulnerabilities and 

operational risks should 

be studied across the 

entire financial system.

Figure 8. Interconnections in the Credit Default Swaps Market Illustrate How Shocks Can Spread

J

D

I

E

G

H

F

K

CCP

V

Q

U

T

R

X

S

Z B

Y C

A

O N M

P L

CCP

A

J

E

G

H

F

K

CCP

V

Q

U

T

S

Y

A

N O

P L

CCP CCP

Nonmembers

Clearing Members

Initial shock

on a rm

Initial infection

Spillover infection

Not infected 

Note: Arrows signify direction of payment and the thickness of the line indicates the size of payment disruption. CCP stands for 

central counterparty.

Source: OFR analysis
Key Findings from Research and Analysis 23

The OFR’s broad financial stability 

mandate gives us a unique perspective for studying threats to the financial system from cybersecurity risks 

and other operational risks. The OFR 

has the authority to collect data from 

federal financial regulators and market 

participants. This authority allows the 

OFR to analyze a wide range of detailed 

transaction-level datasets. Using these 

data, researchers can develop detailed 

maps that show the financial transactions among market participants and 

identify the participants most important 

to a particular part of the U.S. financial 

system.

The OFR’s current research on cybersecurity and other operational risks is in 

two main areas. The first analyzes past 

operational and cybersecurity incidents 

involving financial entities. We review 

event studies, recent experiences, and 

other information to understand events 

and how they might threaten the financial system. Researchers evaluate the 

efficacy and scope of regulations and 

gaps in policy that could affect the financial system’s resilience. We draw lessons 

from tabletop exercises, which bring 

together industry participants and regulators to examine potential scenarios.

The second major area of OFR research 

focuses on applying network analysis to 

potential cybersecurity risks and other 

operational risks. The OFR is developing maps that highlight connections 

throughout the financial sector. We use 

these maps to identify key vulnerabilities 

and critical institutions across different 

markets.

Network analysis 

combined with maps of 

the financial system 

populated by real-world 

data may help identify 

potential vulnerabilities to 

cybersecurity threats.

Network analysis of these maps identifies 

the most centrally connected companies in a financial market. This analysis 

offers several key lessons for improving 

defenses. One lesson is that a network’s 

resilience can vary greatly against different types of threats. Targeted attacks 

by sophisticated adversaries can cause 

much more damage than random failures, and these attacks necessitate 

a much higher level of network resilience. Another lesson is that coordinating defense strategies among network 

participants is vital in preventing weaknesses in defense systems. A lack of 

coordination between market participants and regulators can compromise 

network stability and leave key institutions under-defended.

As real-world data is added to these 

maps, network analysis yields more 

valuable insights. The maps hold the 

potential to allow policymakers, market 

participants, and the public to see 

specific ways cybersecurity and operational risks could threaten the stability of 

the financial system. Those insights help 

bolster network defenses.
24 2017 | OFR Annual Report to Congress

Reducing Regulatory 

Reporting Burdens

Regulation and oversight of financial institutions and markets is divided 

among federal and state agencies. 

Banks, brokers, and other U.S. financial 

institutions and markets are governed 

on the federal level by nine independent regulators and three self-regulatory 

organizations. (Insurance companies and 

some banks are also regulated at the 

state level). Firms engaged in multiple 

financial activities are governed by more 

than one regulator. Sometimes a single 

activity is governed by multiple regulators (see Figure 9).

Figure 9. Current Oversight by Federal Financial Regulators

Depository

Institutions

Insurance

Companies

Nondepository

Financial Entities

Broker-Dealers and 

Other Market Intermediaries

Investment Companies 

or Advisors

Fannie Mae, Freddie Mac,

and Federal Home Loan Banks

Financial Market Utilities

and Other Infrastructures

Securities and Markets

Supervision and Systemic Risk

Supervision and Systemic Risk

Housing Finance

Consumer Financial Protection

Safety and Soundness

Consumer Financial Protection

Safety and Soundness

Consumer Financial Protection

OCC

NCUA

CFPB

SEC

CFTC

FHFA

FRB

FDIC

FSOC MEMBER AGENCIES

(Regulatory oversight)

REGULATED FINANCIAL

ENTITIES

Note: Financial Stability Oversight Council member agencies (from top to bottom) are: Federal Reserve Board of Governors 

(FRB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), National Credit Union 

Administration (NCUA), Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Consumer 

Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA).

Sources: Government Accountability Office (GAO), Financial Regulation, GAO-16-175, February 2016, Figure 2, OFR analysis
Key Findings from Research and Analysis 25

This fragmented approach enables 

tailored regulation and enforcement, but 

can also result in inefficient oversight 

and reporting. The current regulatory 

structure has led to inconsistencies in 

agencies’ data collection activities. U.S. 

financial institutions report that they are 

often required to submit the same data 

to more than one U.S. regulator using 

different calculations, classifications, and 

formats. 

Duplicative, conflicting, or inconsistent reporting requirements have the 

potential to increase costs, undermine 

the efficiency and quality of data collections, and impede data comparison and 

integration. Duplicative, conflicting, or 

inconsistent reporting requirements can 

also misalign regulatory reports from the 

data that firms use for their risk management. Likewise, these requirements 

could impair the ability of government 

officials to assess and monitor threats 

to financial stability and assure the 

functionality and integrity of financial 

markets. Finally, duplicative and inconsistent requirements can erode public 

confidence in government.

Preliminary OFR analysis 

indicates that examples 

cited by industry about 

duplicative, conflicting, 

and inconsistent 

regulatory reporting 

requirements merit 

further exploration.

To better understand this issue, we asked 

a handful of financial institutions and 

industry groups for examples. During 

these initial discussions, firms focused 

on reports to member agencies of the 

Financial Stability Oversight Council. 

Information came from asset managers, banks, and financial services trade 

associations. 

We analyzed a selection of these examples identified by industry to determine 

the general validity of industry concerns 

about regulatory burden and identify 

ways the OFR might help address these 

issues. For each example, we compared 

multiple data fields to identify duplicative, conflicting, or inconsistent data 

requirements and found that the industry’s concerns warrant further analysis, as 

discussed in the next section. 

Private Fund Reporting

Preliminary OFR analysis found validity 

in the assertions from industry about 

duplicative, conflicting, or inconsistent 

reporting requirements. Discrepancies 

generally fell into three categories: 

1. identical information sought 

in different data formats or 

classifications,

2. similar information sought using 

different methodologies or metrics, 

and

3. different information sought for similarly situated filers or scenarios.
26 2017 | OFR Annual Report to Congress

The OFR found evidence 

of duplicative, conflicting, 

and inconsistent 

requirements between 

the two forms that 

investment advisors use 

to report information 

about private funds to 

federal agencies.

For example, the reporting requirements 

of Forms PF and CPO-PQR demonstrate 

at least some of these characteristics. 

The Dodd-Frank Act directed the SEC 

to establish reporting requirements for 

investment advisers to private funds. The 

law requires that the reports include data 

such as counterparty credit risk exposure, trading and investment exposures, 

and types of assets held.

To collect the data, the SEC and the 

CFTC jointly implemented a rule requiring certain private fund advisors and 

commodity pool operators (CPOs) to 

submit information through Form PF. 

Separately, the CFTC implemented Form 

CPO-PQR. Large CPOs, as members of 

the National Futures Association, must 

also submit the association’s Form PQR, 

an abbreviated version of the CFTC 

form. These forms require CPOs to file 

confidential reports on holdings, transactions, and certain trading strategies and 

characteristics. Based on size, certain 

pools file more frequently and file more 

information than others.

These reporting forms contain examples 

of identical information being sought. By 

filing Form PF or CPO-PQR, a respondent might not be required to file all 

or part of the other forms or schedules 

of forms. CPOs whose pools qualify as 

hedge funds might report quarterly on 

Form PF, exempting themselves from 

filing all but one year-end CPOPQR schedule. However, large CPOs 

are still required to report quarterly on 

Schedule A of the association’s Form 

PQR. The association’s Form PQR 

contains a subset of the information in 

the CFTC’s Form CPO-PQR. As a result, 

the large CPOs might be required to file 

Form PF, an abbreviated but duplicative 

Form CPO-PQR, and a duplicative association Form PQR at the end of the year.

Although the agencies and association 

attempt to limit reporting duplication, 

the attempts fall short of preventing all 

overlap.

In another example, both forms request 

information on assets under management but have different definitions. Form 

CPO-PQR defines assets under management as the amount of all assets under 

the control of the CPO. The SEC defines 

regulatory assets under management to 

include securities portfolios that receive 

supervisory or management services 

from the report filer. The difference in 

the definitions could require CPOs to 

calculate separate types of assets under 

management for reporting on each of 

the forms.
Key Findings from Research and Analysis 27

Findings and Next Steps

The OFR’s initial analysis found that 

concerns raised by the industry may be 

justified. Further analysis is necessary to 

better understand the reasons for the 

discrepancies. Future analysis should 

consider whether individual discrepancies cause burden, or burden exists only 

in the aggregate. 

If further analysis confirms that these 

concerns are justified, we will work to 

ease these burdens through the FSOC 

and its member agencies and by pursuing our data-related mandates.

LIBOR Alternative

For years, the LIBOR interest rate benchmark has played a central role in global 

financial markets and the economy. U.S. 

dollar LIBOR has been used to set interest rates on trillions of dollars of retail 

mortgages, private student loans, corporate loans, derivatives, and other financial 

products. LIBOR, formerly the London 

Interbank Offered Rate, is now known 

as ICE LIBOR (Intercontinental Exchange 

LIBOR).

A new interest rate 

benchmark would be 

more reliable and viable 

than LIBOR.

The LIBOR benchmark’s past reliance on 

survey submissions rather than transactions led to widespread manipulation. Traders submitted responses to 

the LIBOR survey intending to increase 

returns on derivatives positions, and 

during the 2007-09 financial crisis, 

intending to minimize appearances of 

riskiness of their banks.

Although reforms to LIBOR have made 

manipulation less likely, a shift in sentiment among banks about the advantages of LIBOR and increasing reluctance 

by banks to participate in LIBOR surveys, 

along with the longer-term trend from 

unsecured to secured funding markets, 

have raised serious questions about the 

viability of LIBOR as a benchmark. 

Doubts about LIBOR’s future prompted 

the Federal Reserve to begin an effort 

to identify an alternative benchmark for 

funding costs in U.S. financial markets. 

Approaches to improve data 

quality and reduce reporting 

burden include:

■	 helping agencies agree on 

common standards for definitions, identifiers, and formats;

■	 using statutory authority 

to impose common standards by brokering agreements between industry and 

regulators on essential data 

elements; 

■	 promoting and adhering to 

best practices in data collection; and 

■	 facilitating effective data sharing among regulators.
28 2017 | OFR Annual Report to Congress

The OFR joined the effort, and we have 

worked closely with the Federal Reserve 

to create a set of benchmarks based on 

data on overnight repurchase agreements, or repos.

The Federal Reserve Board and the 

Federal Reserve Bank of New York 

convened the Alternative Reference 

Rates Committee, made up of banks 

active in the derivatives market, to inform 

the process.

The repo market is a key source of 

secured short-term funding for the financial system. In a repo transaction, a security owner sells a security to raise cash. 

The agreement requires the seller of the 

security to repurchase it on a specific 

date for a prearranged price. If the seller 

is unable to repurchase the security, the 

cash provider is entitled to liquidate the 

security for repayment.

In late August 2017, the Federal Reserve 

sought public comment on three daily 

rates based on repo transactions with 

U.S. Treasury securities that would 

be published by the Federal Reserve 

Bank of New York in cooperation with 

the OFR (see Key Benchmarks for 

Alternative Rates). 

The Alternative Reference Rates 

Committee selected the Secured 

Overnight Financing Rate in June 2017 

as its preferred alternative to U.S. dollar 

LIBOR. 

The new benchmarks would be more 

reliable and viable than LIBOR because 

they are based on actual secured transactions, rather than quotes, and would 

bring necessary transparency to the 

repo market. 

Key Benchmarks for Alternative Rates

Triparty General Collateral Rate

This rate would be calculated based on overnight repurchase agreement (repo) transactions against Treasury 

securities in the triparty repo market. The market is 

called triparty because each transaction between a security seller and buyer also involves a clearing bank. The 

Federal Reserve Bank of New York collects data about 

repo transactions from the two clearing banks in this 

market.

Broad General Collateral Rate

This rate would be a broader benchmark based on 

trades in triparty repo and the general collateral financing (GCF) overnight repo market. Trades in the GCF repo 

market are made against a pool of general collateral 

rather than a specific security. The market is run by the 

Fixed Income Clearing Corporation (FICC), which acts as 

a central counterparty. To calculate daily rates, data will 

be obtained about interest rates and the value of funds 

borrowed in GCF repo.

Secured Overnight Financing Rate

This rate would be the broadest measure of the repobased rates. It covers the two markets included in the 

broad general collateral rate, plus centrally cleared bilateral repo transactions. Bilateral transactions are arranged 

and settled between borrower and lender. Bilateral repo 

transactions generally fall into two categories: (1) trades 

cleared through FICC’s service, and (2) uncleared trades 

completed without a third party. Because not much 

data about uncleared bilateral trades is available, this 

benchmark would be calculated with data about interest 

rates and the value of funds borrowed in trades cleared 

through the FICC service.
Key Findings from Research and Analysis 29

The OFR plans to establish an ongoing data collection covering some repo 

transactions. Some of these data might 

be useful in calculating these rates. This 

work builds on the OFR’s 2015 pilot project conducted with the Federal Reserve 

and the SEC to collect data on bilateral 

repo transactions.

The OFR is uniquely 

situated to collect data 

across multiple markets 

that may lie beyond the 

reach of other regulators.

We expect to begin with cleared trades 

so the data can support calculation of 

the Secured Overnight Financing Rate. 

Currently, data to support that rate are 

provided on a voluntary basis — not 

suitable for establishing a rate on which 

potentially trillions of dollars in contracts 

are based.

Selection of the preferred LIBOR alternative is only a first step. The transition 

period brings risks. New benchmarks will 

require broad market acceptance. For 

example, to achieve a smooth transition, 

officials and market participants must 

help develop active derivatives markets 

that use the new rate. Market participants say substantial time might pass 

before all types of financial contracts 

now using LIBOR make the transition to 

a new benchmark rate. Even then, some 

existing contracts do not specifically 

allow an alternative reference rate to be 

selected, so amending their terms could 

be difficult. In some cases, amending a 

financial contract may require the agreement of all bondholders.

Legal Entity Identifier

The global LEI system is a cornerstone 

for financial data standards that benefits industry and government. Like a bar 

code for precisely identifying parties to 

financial transactions, the LEI helps make 

the vast amounts of data in the financial 

system more comparable. The LEI can 

generate efficiencies for financial companies in internal reporting and in collecting, cleaning, and aggregating data.

The LEI can ease companies’ regulatory 

reporting burdens by reducing overlap 

and duplication. Many financial firms 

report data to more than one government regulator, and different regulators 

have different reporting requirements 

and data identifiers. This lack of uniformity can lead to inefficient, costly, and 

overlapping requirements for reporting 

and data management that create costs 

for industry. Estimated costs for industry 

of managing data without common standards run into the billions of dollars.

The OFR’s goal is adoption 

of the LEI broad enough to 

serve the needs of the OFR, 

the FSOC, and FSOC member 

agencies to conduct financial 

stability monitoring and 

analysis. To achieve such a 

network effect, private firms 

must voluntarily adopt the LEI.
30 2017 | OFR Annual Report to Congress

When broadly adopted, 

the LEI will drive 

efficiency and gains in 

data quality for industry 

and government.

Because of these problems, industry 

groups have called on regulators to 

broadly adopt the LEI. The same case 

can be made for adopting other uniform 

standards for regulatory reporting, especially about common metrics for instruments and accounting.

Organizations reap substantial direct 

benefits from adopting the LEI, including reductions in manual processes to 

check identifiers, efficiency gains when 

integrating data sources, and improvements in data quality. These benefits can 

save man-hours and reduce costs. Broad 

adoption of LEIs for client onboarding 

and client documentation could produce 

operational efficiencies for individual banks and clients as well as entire 

markets. 

The LEI can also help industry, regulators, and policymakers trace exposures 

and connections across the financial 

system. If the LEI system had been in 

place during the financial crisis, the 

breadth and depth of exposures to the 

failing Lehman Brothers would have been 

easier to assess and potentially manage.

The OFR led the design and deployment 

of the global LEI system. The system is 

now complete, with a three-tier governance structure, more than 700,000 

LEIs assigned, and reliance on the LEI in 

scores of regulations in the United States 

and abroad.

But full adoption of the LEI — necessary 

for the LEI to produce the most efficiencies for government and the private 

sector and to keep the system selfsustaining — has not yet happened. The 

OFR’s goal is adoption of the LEI broad 

enough to serve the needs of the OFR, 

the FSOC, and FSOC member agencies 

to conduct financial stability monitoring 

and analysis.

To achieve such a network effect, private 

firms must voluntarily adopt the LEI. 

Recent discussions and surveys show that 

mandating the LEI in appropriate cases 

also remains necessary.

At its February 2017 meeting, the OFR’s 

Financial Research Advisory Committee 

recommended that the OFR hold discussions with industry executives and 

government officials about the current 

and future benefits of the LEI, associated 

costs, and barriers to broader adoption. The committee also recommended 

that the OFR share the results of its 

inquiry with selected industry executives 

who could help identify practical ways 

to overcome the barriers. Finally, the 

committee suggested meetings between 

regulators, industry, and the OFR to 

further explore potential solutions.

Strategic regulatory 

mandating of the LEI is 

required, according to 

industry advocates.

The OFR has determined that regulation

requiring use of the LEI (as opposed 

to making LEI use optional) are effective and necessary to drive adoption. 

For example, the Markets in Financial 

s 
Key Findings from Research and Analysis 31

Instruments Regulation in Europe, set 

to take effect in January 2018, requires 

LEIs for all counterparties to all trades 

under a rule known as “no LEI, no trade.” 

This rule helped drive LEI adoption in 

Europe, and notable increases in LEI issuance have occurred in the run-up to the 

compliance deadline.

In Europe, regulators concluded that the 

benefits justified requiring the LEI in this 

way. In the United States, many market 

participants will not obtain an LEI unless 

it is mandated.

Our fact-gathering found that regulators are reluctant to mandate use of the 

LEI if they already have an identifier that 

serves the needs of their own reporting, 

even if they would benefit from increased 

interoperability of their data with data 

from other regulators.

Regulators also view the $75 cost of 

obtaining an LEI as a burden on smaller 

businesses without more compelling and 

direct benefits. Smaller organizations are 

often reluctant to obtain LEIs, claiming 

that LEI acquisition would be an additive 

regulatory burden without a clear, direct 

benefit. These organizations may not 

have data operations, do not appreciate 

the potential for productivity gains, do 

not appreciate the indirect benefits, or 

do not believe their organizations affect 

financial stability. 

Although the cost of obtaining an LEI 

is low, the administrative costs of maintaining LEIs in internal systems can be 

a factor, especially systems with more 

complex data. 

Larger firms have more hurdles to clear 

in changing their processes to obtain, 

maintain, and renew their LEIs. Firms with 

internal databases that rely on proprietary identifiers also incur costs to map 

their databases to the LEI. However, 

some firms have already made infrastructure investments and implemented database improvements to use LEIs.

The next step in the evolution of the LEI 

standard, the introduction of corporate 

hierarchy data (also known as level 2 

data), can create challenges because of 

the complexity of many organizational 

structures. These data answer the question of “who owns whom” in the financial 

system and offer insights about the full 

risk exposures of large, complex financial 

entities. 

Consistent with statements several years 

ago by the FSOC and G-20 (the Group 

of 20, a forum of finance ministers and 

heads of central banks from 19 countries 

and the European Union), the OFR has 

found that the LEI offers indirect benefits relating to market stability. Repeated 

confirmation of these benefits by government regulators remains critical to reach 

the number of adopters needed to make 

the system self-sustaining and achieve 

the network effects necessary to conduct 

dynamic and effective financial stability 

monitoring and analysis. So does the 

identification of quantifiable cost savings 

and efficiency gains, as cited by recent 

industry reports.

The OFR has determined that 

regulations that require use 

of the LEI are effective and 

necessary to drive adoption. 
32 2017 | OFR Annual Report to Congress

Substitutability 

means providing 

important 

services that 

customers would 

have difficulty 

replacing if the 

bank failed.

Assessing Systemic 

Importance of Banks

What is the best way to determine the 

systemic importance of a U.S. bank? 

Many U.S. regulations categorize banks 

based on asset size. However, size alone 

does not fully capture the risks a bank 

may pose to financial stability.

A multifactor approach 

that captures risk is 

superior to using asset 

size alone to determine 

the systemic footprint of 

U.S. banks.

OFR research supports an alternative 

approach that relies on multiple factors, 

not just asset size.

The Dodd-Frank Act created an assetsize threshold of $50 billion to identify 

banks to be subject to enhanced regulation. That threshold could subject some 

large U.S. banks with traditional business models to enhanced regulation that 

creates compliance costs unaligned with 

their risks. It could also exclude some 

U.S. operations of foreign banks. 

As of the end of 2015, a total of 34 U.S. 

banks each had more than $50 billion in 

assets. Eight of those are banks identified as global systemically important 

banks (G-SIBs), banks whose distress or 

disorderly failure would cause significant 

disruption to the global financial system 

(see Figure 10).

A multifactor approach could replace the 

$50 billion asset-size threshold used in 

some U.S. bank regulations. A multifactor 

approach would be similar to the approach 

used internationally to identify G-SIBs.

G-SIB identification is currently based 

on an evaluation of five factors: (1) size, 

(2) complexity, (3) interconnectedness 

to other financial companies, (4) foreign 

activities, and (5) lack of substitutability (providing important services that 

customers would have difficulty replacing if the bank failed). 

For identifying systemically important 

U.S. banks, the G-SIB methodology 

could be extended and applied to identify large U.S. banks that are not G-SIBs, 

but merit extra regulatory scrutiny.

For U.S. banks with 

traditional business 

models, an asset-size 

threshold for determining 

whether to apply 

heightened regulatory 

standards could create 

misaligned regulatory 

compliance costs.

The first improvement would be to better 

incorporate risks arising from a lack of 

substitutes, particularly for banks that 

provide payments, settlement, custody, 

and other unique services central to the 

functioning of financial markets. 

The second improvement would better 

account for the complexity of some 

foreign banking organizations operating 

in the United States. The U.S. operations 

of foreign banks tend to be more active 

in U.S. capital markets and rely more on 

wholesale funding than comparably sized 

domestic banks.
Key Findings from Research and Analysis 33

Figure 10. Systemic Importance Scores Under the Basel Methodology (basis points)

Bank Holding 

Company

Size Interconnectedness Substitutability Complexity CrossJurisdictional 

Activity

2015 Systemic Importance Score 

Global Systemically 

Important Bank (G-SIB)

Non-G-SIB 

Intermediate Holding 

Company

Total exposures scoreassetsIntrafinancial system liabilitiesIntrafinancial system Securities outstandingPayments activityAssets under custodyUnderwriting activitycounter derivativesAmount of over the securitiesand available for sale Adjusted trading Level 3 assetsForeign claimsjurisdictional liabilitiesTotal crossJPMorgan Chase 394 363 415 425 1160 1413 699 798 839 489 278 353 464

Citigroup 300 338 414 336 1107 831 536 735 465 512 409 426 430

Bank of America 354 291 185 359 444 8 730 659 647 284 185 158 345

Goldman Sachs 170 329 130 249 50 74 498 702 314 410 182 162 252

Wells Fargo 271 215 160 419 143 147 669 95 442 434 62 79 250

Morgan Stanley 140 247 62 172 47 106 512 427 453 253 136 182 212

Bank of NY Mellon 51 91 278 50 801 1686 11 17 77 0 47 112 160

State Street 32 34 174 63 320 1521 0 21 123 39 42 75 148

Northern Trust 17 53 19 13 169 435 0 6 21 0 15 31 56

HSBC North America 57 50 65 46 11 2 84 110 25 62 20 0 44

U.S. Bancorp 65 17 14 105 33 86 36 3 36 58 2 19 41

PNC Financial Services 53 24 14 58 11 6 27 5 60 140 4 2 34

Charles Schwab 24 18 0 35 1 178 0 0 68 0 4 2 25

Deutsche Bank Trust 7 13 38 0 268 0 0 0 0 0 1 0 23

Capital One Financial 47 25 2 83 3 0 4 2 24 15 5 1 20

TD Group U.S. Holdings 37 16 5 5 2 1 0 3 82 19 15 1 18

American Express 24 9 8 97 1 0 0 1 9 0 13 7 15

BB&T 30 2 5 50 3 3 17 1 15 28 1 0 14

SunTrust Banks 29 3 3 31 3 4 25 3 8 35 1 1 14

BMO Financial 18 28 16 18 22 10 13 0 18 1 3 4 13

Ally Financial 20 8 11 83 1 0 0 1 23 1 1 0 13

MUFG Americas Holdings 17 15 10 15 4 9 0 2 22 29 2 1 11

Fifth Third Bancorp 21 3 4 28 5 17 11 1 19 7 2 0 11

Santander Holdings USA 18 3 25 19 0 0 0 1 19 29 1 0 10

M&T Bank 17 3 5 29 7 6 1 0 4 1 0 0 7

KeyCorp 16 2 2 20 4 6 13 1 5 5 1 0 7

Discover Financial 13 11 0 54 1 0 0 0 1 0 0 0 7

Huntington Bancshares 10 2 2 14 2 6 2 1 11 35 1 0 7

Regions Financial 18 1 3 18 3 1 3 1 13 5 0 0 7

Citizens Financial 20 5 5 14 8 0 0 1 2 0 1 1 7

BBVA Compass 13 1 4 12 1 0 9 1 9 1 1 1 5

Comerica 11 7 6 10 1 4 2 0 3 1 1 1 5

BancWest 13 2 3 9 2 0 0 0 3 1 0 1 4

Zions Bancorp 8 2 3 7 2 0 0 0 2 2 0 0 3

Note: Data as of December 31, 2015. Entries are sorted from highest to lowest systemic importance score.

Sources: Basel Committee on Banking Supervision, Federal Reserve Form Y-15, OFR analysis
34 2017 | OFR Annual Report to Congress

During the financial crisis in 2007-09, 

stress on foreign banks spilled into the 

U.S. financial system and the U.S. operations of some of these banks were large 

beneficiaries of Federal Reserve credit 

programs. 

Financial Data Services 

Initiatives

The OFR has a statutory mandate to 

standardize the types and formats of 

financial data, expand the scope of data 

suitable for financial stability analysis, 

foster appropriate data sharing, and 

make data accessible while protecting 

data security.

Financial data services 

initiatives could reduce 

regulatory reporting 

burdens.

One of the OFR’s challenges is to achieve 

this mandate while serving the needs of 

the FSOC, FSOC members, and other 

stakeholders. To meet this challenge, 

the OFR is considering financial data 

services initiatives the FSOC could adopt 

to streamline financial data purchasing, 

collection, integration, and access. 

One potential financial data services 

initiative could offer one-stop shopping 

for detailed information — like an index 

or card catalog — about the data held 

by FSOC member agencies.

Another initiative would foster data 

sharing among FSOC member agencies 

by helping stakeholders apply standard 

formats to financial data and access 

analytic tools and related code, while 

protecting data security. 

Financial data services 

initiatives could serve the 

FSOC and its member 

agencies by increasing 

efficiency, facilitating 

appropriate data sharing, 

and reducing the indirect 

and direct costs of 

financial data acquisition.

A repository of metadata, the detailed 

descriptions of the data regulators 

collect, will enable linking of financial 

datasets. In collaboration with FSOC 

member agencies, the OFR maintains a 

limited version of this repository today, 

the Interagency Data Inventory. 

A third financial data services initiative 

would expand on the current inventory 

by including richer detail on the descriptions of regulatory data collections, 

down to the granular data-element level. 

This detail is analogous to the column 

headings and formats in a spreadsheet. 

The heading displays the column name 

and each cell in the column is in a certain 

format, such as text, number, currency, or 

percentage.

A metadata repository captures these 

types of descriptive details. By comparing the details in a catalog of metadata, 

we can address questions of duplication, overlap, and inconsistencies among 

FSOC members’ datasets — an essential 

step toward reducing regulatory reporting burdens.
■	 Expanding central clearing in the repurchase agreement (repo) 

market could reduce risk exposures for dealers by 81 percent. The 

repo market provides short-term financing for financial companies. 

After the financial crisis, rules made banks more resilient to stress, 

but also increased the cost of repo trading for bank-owned dealers. 

These costs are mostly related to the 2012 introduction of the supplementary leverage ratio, which the OFR has explored in other papers. 

Today, dealer-to-dealer bilateral repo transactions backed by government securities can be centrally cleared, but transactions between 

dealers and clients are not centrally cleared. Expanding repo central 

clearing to transactions between dealers and clients could reduce 

costs related to the supplementary leverage ratio, improve market 

access, and support financial stability. (“Benefits and Risks of Central 

Clearing in the Repo Market,” by Viktoria Baklanova, Ocean Dalton, 

and Stathis Tompaidis)

■	 New leverage rules have affected the repo market. Bank-owned 

dealers subject to the rules now borrow less through repo but 

use lower-quality collateral. Higher bank capital requirements help 

protect banks against losses, but may have unintended consequences. 

Regulators use leverage ratios such as the supplementary leverage 

Key Findings from 2017 Research Papers

The OFR’s published research focuses on financial stability issues central to our 

mission. Here are key findings from selected OFR briefs and working papers during 

fiscal year (FY) 2017.

Key Findings from Research and Analysis 35
ratio to backstop risk-based capital standards. Risk-based 

standards require banks to hold more capital against 

more risky assets. Leverage ratios do not draw distinctions 

based on risk. After the supplementary leverage ratio was 

introduced in the United States in 2012, dealers owned 

by U.S. bank holding companies and covered by the new 

regulation borrowed less in the repo market, but used 

riskier collateral. Dealers not owned by banks increased 

their repo borrowing as bank-affiliated dealers pulled 

back. This change suggests risks may be shifting outside 

the banking sector. (“Do Higher Capital Standards Always 

Reduce Bank Risk? The Impact of the Basel Leverage 

Ratio on the U.S. Triparty Repo Market,” by Meraj 

Allahrakha, Jill Cetina, and Benjamin Munyan)

■	 Firms peripheral to a central counterparty (CCP) 

network that are net sellers of credit protection contribute more to systemic risk in the credit derivatives 

market than do central counterparties at the core of 

the market. A severe credit shock can trigger demands 

for large payments between counterparties in the U.S. 

credit default swaps (CDS) market. Researchers used 

anonymized market data to build a model of the CDS 

payment network. Under stress, the central counterparty 

contributes less to contagion than peripheral firms that 

are large net sellers of CDS protection. During a credit 

shock, these firms can suffer large shortfalls that create 

shortfalls for their counterparties, amplifying the initial 

shock. (“Contagion in the CDS Market,” by Mark Paddrik, 

Sriram Rajan, and H. Peyton Young)

■	 If the Federal Reserve requires banks to leave their capital buffers untouched during stress tests, banks would 

be more resilient during a financial crisis but would 

be required to hold more capital during less-stressed 

times. U.S. bank regulators are phasing in new capital buffers, which are cushions of capital banks hold to 

absorb losses under stress. The Federal Reserve has not 

announced how stress tests will treat these new capital 

buffers. Should the tests require banks to leave buffers 

untouched? Or should banks be allowed to draw down 

buffers to pass stress tests? If a bank can’t draw down its 

36 OFR 2017 Annual Report to Congress
Key Findings from Research and Analysis 37

buffer, the U.S. G-SIBs would have to hold more capital. 

Without the change, however, stress tests could affect 

less-systemic banks more than G-SIBs. (“Capital Buffers 

and the Future of Bank Stress Tests,” by Jill Cetina, Bert 

Loudis, and Charles Taylor)

■	 Regulators could create systemwide stress tests of CCPs 

at minimal cost to companies by building on existing stress test results at individual CCPs. A better U.S. 

systemwide stress test could be built to measure the 

strength of all CCPs based on existing stress tests by U.S. 

and European regulators. Models that combine existing 

data with statistical techniques and computer modeling would broaden and deepen the tests. Regulators 

would get a clearer view of systemwide risks from banks 

that work through multiple CCPs. This approach would 

require regulators to collaborate in sharing and analyzing data. (“Measuring Systemwide Resilience of Central 

Counterparties,” by Stathis Tompaidis)

■	 A new way of measuring complexity can support the 

resolution process after a bank holding company fails.

An approach for measuring the complexity of bank holding companies is based on the number, diversity, and 

geographic distribution of bank holding company subsidiaries. The approach combines network analysis and 

graph theory to measure complexity by identifying bank 

holding company subsidiaries that share a common property, such as business activity or geographical location, 

and then calculating how many ownership and control 

links must be disentangled to unwind the company if it 

fails. (“The Complexity of Bank Holding Companies: A 

New Measurement Approach” by Mark D. Flood, Dror 

Y. Kenett, Robin L. Lumsdaine, and Jonathan K. Simon, 

Sept. 29, 2017)
SUPPORT 

OF OUR KEY 

STAKEHOLDERS

COLLABORATION

FINANCIAL 

RESEARCH 

ADVISORY 

COMMITTEE

ORGANIZATION

STAFFING AND

OFFICES

INFORMATION 

TECHNOLOGY
Meeting Our Mission 39

Status of the Efforts of the OFR in Meeting 

Its Mission

This chapter discusses OFR support for our key stakeholders, 

our national and international collaborations over the 

past year, current staffing levels, our budget, and information 

technology projects. 

The OFR was created when the financial system and the economy were 

beginning to recover from the financial crisis, and regulators were beginning 

to implement regulations and policies to make the financial system more 

resilient.

The environment and stakeholders’ needs have evolved since then. In the 

future, we plan to continue adjusting our focus on meeting the needs of our 

key stakeholders — the FSOC, FSOC members, the Treasury Department, 

Congress, the financial services industry, and the public — as their priorities 

evolve.

As a service organization, the OFR stands ready to respond quickly to stakeholders’ needs and collaborate with stakeholders to achieve them.

MISSION
40 2017 | OFR Annual Report to Congress

Support of Key 

Stakeholders

Financial Stability Oversight 

Council

The OFR meets the Dodd-Frank Act 

mandate of supporting the FSOC and 

FSOC members in a number of ways. The 

Office provides data, research, and analysis to the FSOC, its members, Congress, 

and the public. We are also charged with 

looking throughout the financial system 

to collect and standardize financial data, 

monitor and analyze risks, and perform 

policy research and analysis. 

The FSOC obtains data from nonbank 

financial companies through the OFR.

Our Director is a nonvoting member of 

the FSOC, and members of the OFR staff 

work on a wide variety of FSOC activities 

and initiatives. 

The OFR supports the FSOC and its 

members by:

■	 supplying monthly data and analysis 

on market trends;

■	 presenting updates of our monitors and delivering ongoing threat 

assessments to the FSOC Systemic 

Risk Committee;

■	 presenting to FSOC principals and 

deputies to inform their discussions 

of market events and potential 

policy steps;

■	 making presentations and participating in discussions for other FSOC 

working committees and groups, 

including the Regulation and 

The OFR will be a:

■	 Trusted resource for meeting stakeholder needs.

We aim to fill gaps in stakeholder capabilities, give 

objective advice, and act as a sounding board for 

making difficult decisions.

■	 Key source for financial data. High-quality financial data that are secure, fit for their intended 

purpose, easy to access and compare, and inexpensive are essential for making good policy 

decisions. 

■	 Key source for research and analysis on financial stability. On behalf of the FSOC, we conduct 

applied and essential long-term research on the 

causes of financial crises, develop tools for measuring and monitoring financial stability risks, and 

analyze the impact of policies related to financial 

stability.

■	 Source for supplemental expertise. The DoddFrank Act requires the OFR to maintain expertise 

to support the FSOC and its members. The OFR 

has this expertise in the fields of finance, regulation, economics, law, policy, data, and technology.
Meeting Our Mission 41

Resolution Committee and Financial 

Market Utilities Committee;

■	 assisting the FSOC in developing its 

annual report through analysis and 

writing support;

■	 leading the FSOC Data Committee 

and co-leading the committee’s 

working group that updates the 

Interagency Data Inventory; and

■	 providing data and analysis to 

support the FSOC’s nonbank designation process as the FSOC identifies nonbank financial companies 

that meet thresholds in the FSOC’s 

initial quantitative metrics.

The FSOC Data Committee is a forum 

for sharing information and coordinating action on data-related topics that 

affect member agencies. The OFR leads 

the committee, which has overseen the 

development of the FSOC Interagency 

Data Inventory, designed as an initial 

step toward avoiding duplication and 

burden in regulatory reporting. The 

inventory, the catalog of data being 

collected by the FSOC member agencies, helps identify data that can be 

shared by serving as a common reference of regulatory datasets. It can also 

serve as a best-practices framework for 

categorizing information security levels, 

sharing data, and improving reporting 

efficiency.

We also co-chair the working group of 

the Data Committee that updates the 

inventory. Maintenance of the inventory 

is increasingly important as we strive to 

identify financial regulatory burdens on 

industry that can be reduced.

In addition, we serve the FSOC and its 

staff by collecting, maintaining, and 

appropriately sharing supervisory and 

commercial datasets. The OFR has 

purchased and maintains more than 65 

datasets used by the FSOC staff. The OFR 

develops procedures and protocols for 

securely sharing data among the FSOC, 

its member agencies, and the OFR. 

We regularly respond to requests by the 

FSOC and its staff for objective research 

and analysis. In addition, we have worked 

to determine the best methods for identifying systemically important banks. 

In this effort, we built on our earlier 

research to show how a multifactor 

approach for assessing systemic importance is superior to making determinations based solely on bank size. 

Our research also helps the FSOC identify and prioritize threats to financial 

stability. 

FSOC Members

The OFR offers objective evaluation of 

financial stability risks and the effectiveness of regulatory policies to FSOC 

members. The OFR has partnered with 

FSOC member agencies on a number 

of research and data projects, some at 

the specific direction of the FSOC or its 

member agencies, and others in a less 

formal response to concerns discussed.

Our work to meet the needs of the 

FSOC member agencies includes a 

project with the Federal Reserve to 

collect and analyze data in support of a 

reference interest rate as an alternative 

to LIBOR, an interest rate benchmark 

formerly known as the London Interbank 
42 2017 | OFR Annual Report to Congress

Offered Rate, but now called ICE LIBOR 

(Intercontinental Exchange LIBOR). We 

are also collaborating with the Federal 

Reserve on a project to fill critical data 

gaps in repurchase agreement (repo) 

transactions, which could support the 

reference rate project.

During fiscal year 2017, we improved 

our U.S. Money Market Fund Monitor, 

which tracks the investment portfolios of 

money market funds and shows trends 

and developments across the money 

market fund industry. The monitor uses 

data converted from the SEC Form 

N-MFP and presents the information in 

a graphic, user-friendly format on the 

OFR website. It makes the underlying 

data freely available for download by the 

industry and public for monitoring and 

analysis. The monitor is one of the most 

viewed items on the OFR website, with 

more than 14,000 page views in the year 

after its launch.

To improve data sharing among the 

FSOC member agencies, we are continuing to work with them to streamline the 

process of developing memorandums of 

understanding by developing best practices and a set of common provisions.

We anticipate that our ongoing work with 

standards organizations on identifiers 

and other data standards will benefit the 

FSOC member agencies as the quality and interoperability of financial data 

improves.

The OFR led the U.S. delegation on the 

global Legal Entity Identifier (LEI) initiative so the LEI could be developed to 

meet regulatory needs, including swap 

data repository collection requirements. 

This foundational standard was the result 

of a global effort that the OFR spearheaded, as Treasury’s representative to 

the international initiative through the 

Financial Stability Board. 

The LEI system now is routinely considered by others as a way to meet additional needs. For example, the LEI code 

has become the preferred identifier for 

parties engaged in swaps activities, and 

the International Standards Organization 

asked the foundation that runs the LEI 

system to maintain the international 

standard for “entity legal form” (such as 

a corporation).

Treasury

Because the OFR is an office of the 

Treasury Department and the Secretary 

is the FSOC chair, we regard Treasury 

as a key stakeholder. We share expertise and staff time on projects with the 

Department, consistent with the law, as 

we do with other FSOC members.

In addition to supporting the FSOC 

annual report project, the OFR has lent 

employees with special expertise to the 

Department on work details of up to six 

months.

We also provide Treasury offices access 

to purchased data on a reimbursable 

basis, generating significant cost savings 

compared with those offices obtaining 

the data directly (because they avoid 

administrative costs and pay only for the 

services they need).

To support efforts to make the financial 

system more resilient to cyber threats, 

we are assisting Treasury’s Office of 

Critical Infrastructure Protection and 

Compliance Policy in maintaining and 
Meeting Our Mission 43

updating their maps of the financial 

system. The goal of our network analysis 

of the maps is to gauge the resilience of 

U.S. financial markets to shocks. 

In addition, through our regulatory reporting burden initiative, the 

OFR is addressing broad Treasury, 

Congressional, and industry interest in 

identifying areas of duplication, overlap, 

and inefficiency in regulatory reporting. 

We have identified, on a pilot basis, areas 

of potential overlap in regulatory reports 

relating to private funds (see Reducing 

Regulatory Reporting Burdens). This 

work, if expanded, could aid the FSOC in 

identifying and brokering the implementation of common data standards that 

would alleviate reporting burdens on 

firms and improve the quality of financial 

data for regulators.

Congress

The Dodd-Frank Act requires the OFR 

to report to Congress annually on our 

progress in meeting our dual data and 

research mandates. We do so through 

this report, and our Director testifies 

before Congress when invited. The 

OFR also submits quarterly reports 

to Congress as required by the 

Consolidated Appropriations Act. These 

reports describe the OFR’s use of funds, 

staffing levels, and actions to achieve its 

goals and objectives.

In addition, our Government and 

Industry Affairs liaisons routinely interact with key members of Congress, their 

staffs, and committee staffs to respond 

to questions, address concerns, and 

share insights on issues related to financial stability. 

Key members of the House Financial 

Services Committee and Senate Banking 

Committee have referenced OFR 

research during public proceedings, 

including our research on identifying 

systemically important banks. The OFR 

also has made presentations to staff 

members of the House Financial Services 

Committee and the Senate Banking 

Committee on the OFR’s U.S. Money 

Market Fund Monitor and on issues 

including financial stability considerations related to bond market liquidity.

In addition, we are working with other 

agencies to respond to Congressional 

inquiries about assessing the benefits 

of cross-market surveillance for market 

oversight and financial stability monitoring, and the potential impact for financial firms of a new Chapter 14 of the 

Bankruptcy Code.

Industry

The OFR has had an industry outreach 

function since the early days of its existence. Our Government and Industry 

Affairs team meets with leaders of financial service companies on a regular basis, 

learning what issues concern financial 

experts to further inform our agenda.

Our pilot work to collect and anonymize 

repo data to produce reports about the 

bilateral repo market has been widely 

cited by market participants as a success. 

In addition, the industry Alternative 

Reference Rates Committee has 

expressed support for the repo-based 

reference rate (to replace LIBOR) that the 

OFR and the Federal Reserve Bank of 

New York would produce.
44 2017 | OFR Annual Report to Congress

We also are working on a regulatory 

reporting burden project that would 

benefit industry and promote more efficient regulation by exposing expensive, 

duplicative, and inefficient regulatory 

reporting. 

Industry trade groups have noted 

favorably the OFR’s ongoing objective 

analysis on regulatory reform, including 

OFR analysis of bank stress tests, the 

approach for identifying systemically 

important banks, and the regulation of 

central counterparties.

The Public

The stability of the U.S. financial 

system is essential to the welfare of all 

Americans and their financial wellbeing. As a result, the American public 

is a beneficiary of OFR efforts to assess 

and report on vulnerabilities in the 

system. Our service stems from our critical function as both a research and data 

institution, our ability to look across the 

entire financial system to spot emerging threats to financial stability, and our 

unique data-related mandate. 

Results of our work are made public on 

the OFR website, financialresearch.gov. 

In publishing our findings and monitoring 

tools, we support market discipline by 

making the vulnerabilities of the financial 

system more transparent.

Another channel for informing the public 

about the OFR and its work is our Twitter 

site, where we highlight key OFR activities and products, including graphics. 

We also send e-mail alerts to the more 

than 30,000 subscribers who subscribed 

through our website. 

Our research is regularly cited in the 

media. We maintain working relationships with members of the news media 

and answer reporters’ questions about 

the OFR. 

To further meet the needs of the public, 

we have projects underway to enrich the 

information on the OFR website and to 

make it more usable and accessible by 

applying usability best practices. We are 

also working to expand our offerings of 

downloadable data and interactive monitors for members of the public and news 

media to understand the importance 

of OFR work and topics related to the 

stability of the financial system.

Collaboration

OFR staff experts and leaders participate 

in a wide variety of events related to 

financial stability research, data, and 

analysis. Collaboration with other 

researchers and regulators, as well industry experts domestically and abroad, 

is crucial to our success. The OFR has 

created a virtual research-and-data 

community to extend our reach and 

impact by collaborating with colleagues 

in government, industry, and academia in 

the United States and around the globe. 

Collaboration with others helps us to 

maximize our resources, support financial 

stability research, and promote standards 

that lead to high-quality data on the 

global financial system.

We regularly reach out to academic 

and financial industry groups for their 

input on current and emerging financial 

stability issues. We also collaborate with 

colleagues around the world on research 
Meeting Our Mission 45

and data projects by speaking at conferences and events and maintaining our 

involvement with global organizations. 

In addition, we hold and cosponsor 

conferences and other events to promote 

awareness and discussion about issues 

related to financial stability.

Our outreach includes remarks, presentations, and appearances in panel discussions by OFR Director Richard Berner 

and other members of the OFR staff. 

They speak at conferences and meetings 

sponsored by industry groups, government regulators, academic institutions, 

and others.

In addition, the OFR sponsors a Research 

Seminar Series for OFR employees to 

engage in discussion and debate with 

outside experts from government agencies, academic institutions, and international organizations. More than two 

dozen outside experts appeared at 

these seminars during the fiscal year. 

Presentations included:

■	 “Liquidity Requirements, Liquidity 

Choice, and Financial Stability”

■	 “Competition and Stability in 

Banking: The Role of Regulation and 

Competition Policy”

■	 “Do Bank Bailouts Reduce or 

Increase Systemic Risk? The Effects 

of TARP on Financial System 

Stability”

■	 “Liquidity Regulation and 

Unintended Financial Transformation 

in China”

Financial Research Advisory 

Committee

The OFR Financial Research Advisory 

Committee, a group of 29 experienced 

professionals with experience in business, economics, finance, data science, 

risk management, and information 

2017 Financial Research Advisory Committee Meetings

February 23

Department of 

Treasury

The ninth meeting of the committee included discussions of financial stability 

risks identified by the OFR, the OFR initiative to develop a financial instrument 

reference database, adoption of the Legal Entity Identifier, and the research 

agendas of OFR programs on central counterparties and risks in financial institutions. The OFR also received updates from the committee’s Financial Instrument 

Reference Database Viewpoint Working Group, Data Standards Working Group, 

and Financial Innovation Working Group.

July 20

Federal Reserve 

Bank of New 

York

This meeting included a presentation on improvements to the Financial Stability 

Monitor; a demonstration of the OFR’s newest monitoring tool, the Financial 

Stress Index; an update on the OFR’s efforts to identify obstacles to broader 

adoption of the Legal Entity Identifier; and a discussion of the OFR’s work to 

monitor and analyze operational risks and cybersecurity risks. At the meeting, the OFR also received updates from the committee’s Financial Innovation 

Working Group.
46 2017 | OFR Annual Report to Congress

technology, enhances our annual 

research-and-data agendas with recommendations that help ensure the OFR 

is focusing on the most important and 

timely issues. Committee members are 

drawn from industry, academia, and the 

policy community.

The committee, established in 2012, 

gives the OFR the benefit of industry 

experts who bring diverse perspectives 

to inform our work and help the OFR to 

fulfill its mission. Under the governance of 

the Federal Advisory Committee Act, the 

full committee meets semiannually. The 

OFR makes the minutes and webcasts of 

the meetings available to the public.

The three subcommittees — Research, 

Data and Technology, and Financial 

Services and Risk Management — meet 

at different times during the year to 

develop committee work.

Developing Standards for 

Reporting Financial Data 

The OFR’s commitment to setting global 

standards — ranging from identifiers 

such as the LEI to mortgage standards 

— is integral to our mandates under the 

Dodd-Frank Act. To that end, the OFR 

provides analytical assistance on data 

standards, and promotes their development and use among the FSOC member 

organizations, in global regulatory 

forums, and through standards-setting 

bodies.

Our collaboration with public and 

private stakeholders during the past 

year reaffirmed that the time is right to 

establish clear, internationally mandated 

and coordinated standards for reporting 

financial data and metadata (the data 

describing data).

Implementation requires the use of standards for the design of data collections, 

either through coordinated global action 

or implementation of technical guidance. 

At its meeting in February, the OFR’s 

Financial Research Advisory Committee 

recommended that the OFR engage 

key stakeholders of the LEI to identify 

obstacles to more complete adoption 

of the standard. The OFR is following 

that recommendation as it continues 

to lead the process of building implementation strategies and coordinating 

adoption plans with industry and regulatory colleagues in the United States and 

abroad.

Memorandums of 

Understanding

Memorandums of understanding (MOUs) 

are key to the OFR’s strategy to promote 

data sharing, particularly among regulators. In May, the OFR and the European 

Central Bank signed an MOU that formalizes the processes for the staffs of the 

OFR and the bank to share analyses and 

information about emerging financial 

market risks in the United States and the 

eurozone.

This MOU is the OFR’s second on 

cross-border cooperation. In April 2015, 

the OFR signed a similar informationsharing arrangement with the Bank of 

England, the United Kingdom Prudential 

Regulation Authority and the United 

Kingdom Financial Conduct Authority.

These types of cross-border agreements 

on information sharing are important 
Meeting Our Mission 47

tools for the OFR to meet its statutory 

mandate by monitoring global financial 

market risk, while potentially lowering 

regulatory reporting costs for firms that 

operate in the United States and abroad. 

The OFR also has scores of MOUs with 

other agencies in the United States.

Standards for Derivatives 

Data

The OFR contributes to the global 

Working Group for Harmonization of 

Over-the-Counter Derivatives Data 

Elements. The group, sponsored by 

the Committee on Payments and 

Market Infrastructures – International 

Organization of Securities Commissions 

(CPMI-IOSCO), is focused on three 

distinct efforts: (1) a unique product 

identifier, (2) unique transaction identifier, and (3) standardizing critical data 

elements.

We collaborated with industry participants about the product identifier during 

meetings in January, April, and July of 

2017. The identifier will enable unique 

identification of financial products for 

easier aggregation of data and analysis 

of potential asset-specific risks.

The transaction identifier will enable 

identification of unique individual overthe-counter derivative transactions to 

facilitate aggregation of transactions and 

enhance analysis. We contributed to the 

publication, Technical Guidance for the 

Harmonization of the UTI (unique transaction identifier). We also reviewed the 

industry’s consultative responses and 

drafted the final recommendations of the 

guidance, published in February 2017. 

The technical guidance outlines the definition, format, and use of the transaction 

identifier. 

We participate in the Financial Stability 

Board’s working group on governance 

for both identifiers. Strong global governance is necessary for effective implementation and continued relevance of 

global standards. 

In April 2017, the OFR took leadership of 

the governance assessment work stream 

for the unique transaction identifier. The 

final proposed governance arrangements for the transaction identifier were 

published for public comment in March 

2017.

The work on critical data elements is 

aimed at producing clear guidance to 

authorities on definitions, format, and 

use of critical data elements (other than 

the transaction and product identifiers) 

for consistent and effective global aggregation of over-the-counter derivative 

contracts. Under OFR leadership, this 

work continued to focus on the potential for the International Organization 

for Standardization to manage data 

elements.

As co-chair of the work stream on critical 

data elements, the OFR continues to 

lead the revision of the Batch 1 CDE (critical data elements) Consultative Report, 

consisting of 14 data elements, as well 

as the analysis, finalization, and revision 

of the 27 data elements for the Batch 2 

CDE Consultative Report. The Batch 3 

CDE Consultative Report was published 

in June 2017.
48 2017 | OFR Annual Report to Congress

Mortgage Standards

The OFR staff worked with the industry and global standards bodies during the year 

to develop standards that would affect a broad array of processes in the mortgage 

industry. 

For example, we held a two-day workshop to align data fields and definitions 

between messaging standards by the International Organization for Standardization 

and the Mortgage Industry Standards Maintenance Organization. 

The mortgage industry relies on electronic payments to transfer money between 

participants in mortgage financing, guarantee, and securitization processes. We 

worked with the mortgage industry to help its stakeholders (such as mortgage 

issuers and servicers) understand the potential impact of adopting the International 

Organization for Standardization’s standard in the U.S. electronic payments system. 

The OFR also continued to collaborate with industry and regulators to advance the 

adoption of a universal loan identifier. Such an identifier would help regulators and 

the industry assess risk by linking first and second liens, such as first mortgages and 

related home-equity loans — without revealing the personally identifiable information of borrowers. But without an industry-wide requirement to adopt a universal loan 

identifier, adoption has been slow.

As an example of voluntary adoption, government-sponsored enterprises Fannie Mae 

and Freddie Mac have committed to begin collecting the universal loan identifier for 

all applicable loans delivered to them. This new data collection becomes mandatory 

for loan delivery to these government-sponsored enterprises by May 2019.

Working Groups

Oct. - Nov. 2016 OFR Associate Director of Data Strategy and Standards and 

Acting Associate Director for Strategic Data Support attended 

a meeting on Oct. 28 of the Legal Entity Identifier Regulatory Oversight Committee’s Executive Committee. They also 

attended meetings Nov. 1-2 of the Data Harmonization Working 

Group of CPMI-IOSCO.

FY 2017 OFR Acting Associate Director for Current Analysis participated 

in the Financial Stability Board’s Data Experts Group, which is 

responsible for developing standards for a global data collection on securities financing transactions and implementing 

the collection. The group met to develop the implementation 

guidelines for the collection.
Meeting Our Mission 49

FY 2017 OFR staff members represented the Treasury Department at 

several meetings of the global LEI system and led or participated in several work streams.

FY 2017 OFR staff members represented the Treasury Department in an 

initiative to establish a governance structure for sharing aggregated and anonymized data on securities financing transactions 

with financial authorities overseas through a secure data center 

hosted by the Financial Stability Board and Bank for International Settlements.

FY 2017 OFR senior researchers contributed to the Financial Stability 

Board’s working groups on the over-the-counter derivatives 

market, contributing to a review of effectiveness of market 

reforms.

FY 2017 OFR staff members represented the Treasury Department in 

the Financial Stability Board’s Financial Innovation Network. 

The events included a case study on artificial intelligence and 

machine learning in financial services. The OFR contributed to 

drafting a report analyzing potential benefits and risks for financial stability stemming from applications of artificial intelligence 

and machine learning.

April 2017 OFR staff members acted as U.S. government observers of the 

Joint Expert Group on Interconnectedness at the invitation of 

the European Systemic Risk Board. The group meets to share 

data and analyses on financial stability issues in the European 

Union. The OFR participation allowed the staff members to 

share views about financial stability concerns with their European counterparts.

April 2017 OFR Associate Director for Data Strategy and Standards, a 

Senior Standards Specialist, and a Policy Advisor attended 

the quarterly meeting of CPMI-IOSCO sponsored by the Data 

Harmonization Working Group.

July 2017 OFR Associate Director for Data Strategy and Standards, a 

Senior Standards Specialist, and a Policy Advisor attended the 

quarterly meeting of the Financial Stability Board’s Working 

Group on the Unique Transaction Identifier & the Unique 

Product Identifier and the CPMI-IOSCO Data Harmonization 

Working Group.
50 2017 | OFR Annual Report to Congress

OFR Speeches, Conferences, and Events

Speeches

OFR Director Richard Berner made remarks at the following events:

Oct. 2016 New Pedagogy of Financial Regulation conference at the 

Columbia Law School on “The Interdisciplinary Approach to 

Financial Stability Analysis.”

Jan. 2017 Power of Transparency Speaker Series hosted by the Atlantic 

Council and Thomson Reuters.

March 2017 Financial Data Summit hosted by the Data Transparency Coalition on “Reducing the Regulatory Reporting Burden.”

OFR staff members made public remarks and presentations at many events, 

including:

Oct. 2016 American Society of International Law and the Institute of 

International Economic Law Biennial Conference

OFR’s Senior Advisor for International Affairs spoke on the 

“Systemic Risk Aspects of International Financial Law.”

Oct. 2016 

 Jan.- Feb. 2017 

Securities Lending conference and Securities Finance 

Collateral Management conference

An OFR Senior Financial Analyst gave presentations about the 

OFR’s securities lending data pilot during events sponsored 

by the Risk Management Association and the Information 

Management Network.

April 2017 Enterprise Data World conference

An OFR Senior Standards Specialist shared her ontology 

expertise and how the use of ontologies are helpful when 

managing information from disparate data sources in varied 

formats.

April 2017 Eurofi High Level Seminar

The OFR Deputy Director for Research and Analysis participated in a panel on “Emerging Risks in Global & EU Financial 

Markets.”
Meeting Our Mission 51

May 2017 Financial Information Management conference

The OFR Deputy Director and Chief Data Officer spoke about 

OFR initiatives to improve data quality through collaborative 

standards development efforts with regulators and industry.

July 2017 Society for Economic Measurement 4th Annual Symposium

An OFR Senior Advisor participated in a panel highlighting 

the benefits FinTech and RegTech can provide to the financial industry. He discussed evolving analytical approaches in 

response to explosive growth in data volumes.

FY 2017 Conferences and Events

Oct. 2016 Big Data: Improving the Scope, Quality, and Accessibility of 

Financial Market Data

The OFR and the Center on Finance, Law, and Policy at the 

University of Michigan hosted a conference that explored ways 

to make date more useful, accessible, and secure. 

Dec. 2016 Conference on Innovation, Market Structure, and Financial 

Stability

The OFR and the Federal Reserve Bank of Cleveland cosponsored this event. It brought together academics, policymakers, 

and market participants to discuss financial and technological 

innovations and their impact on financial stability.

March 2017 Setting Global Standards for Granular Data: Sharing the 

Challenge workshop

The third workshop cosponsored by the OFR, Bank of England, 

and European Central Bank brought together policymakers, 

international organizations, and financial industry practitioners 

from around the world. The three sponsoring institutions are 

continuing their work along with other organizations under the 

theme “Sharing the Challenge.” OFR Director Richard Berner 

and representatives of the OFR’s Data and Research Centers 

participated in various panels.

Sept. 2017 Conference on Heterogeneous Agents and Agent-based 

Modeling

The OFR, Brandeis University, and Bank of England cosponsored this event. It highlighted research on the impact of 

individual heterogeneity for financial system stability and 

economic outcomes.
52 2017 | OFR Annual Report to Congress

Organization, Staffing, 

and Offices

Organization

To achieve the goals set by the DoddFrank Act, the OFR has three centers (see 

Figure 11): 

1. The Data Center acquires and 

manages data and leads global 

initiatives to develop standards for 

efficiencies in data reporting and 

analysis. 

2. The Research and Analysis Center

conducts research, performs analysis, 

and evaluates policies related to the 

stability of the U.S. financial system. 

3. The Technology Center is responsible for OFR information technology 

systems and system security, including an information technology platform to support analysis with large 

datasets.

Three divisions support the centers:

1. The Operations Division provides 

expertise, program management, 

implementation, policy, and oversight for budgeting, travel, human 

resources, procurement, and 

facilities.

2. The External Affairs Division

produces OFR publications and 

graphics and maintains relationships 

and communicates with a broad array 

of stakeholders, including Congress, 

industry, the news media, and the 

OFR workforce.

3. The Office of the Chief Counsel, part 

of the Treasury Department’s Office 

of General Counsel, offers legal guidance on policy initiatives, analysis and 

research, data acquisition and usage, 

procurements, and agreements with 

other organizations. It also oversees 

risk management work and audits.

Staffing 

The OFR’s work was supported during 

the fiscal year by 210 employees: 203 

permanent, six term, and one temporary. 

(This count does not include employees 

on detail from other agencies or serving 

under the Intergovernmental Personnel 

Act of 1970.) Only the Director is a political appointee.

Two leadership groups govern the OFR. 

The Director and seven deputy directors 

and chiefs make up the senior management team. The leadership group 

includes those eight senior managers 

plus 20 associate directors who lead the 

teams under the senior managers.

In consultation with the FSOC, FSOC 

members, and other stakeholders, the 

OFR developed an FY 2017 plan that 

reflects our mission, five-year strategic 

plan, key stakeholder needs, critical infrastructure needs, and budget parameters. 

The FY 2017 plan was a roadmap for the 

OFR to meet the needs of key stakeholders within the President’s Budget parameters. All OFR employees were assigned 

work that contributed to meeting stakeholder needs, statutory requirements, 

and the building and operating of critical 

infrastructure.
Meeting Our Mission 53

Figure 11. OFR Organizational 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

Program

Management

Ofce

Application 

Development

Analytic

Systems

Information

Security

IT Strategic

Support

Technology

Strategy

Enterprise

Systems

Data

Center

Treasury’s 

General Counsel Chief of Staff

Legal

Communications

Government

and Industry

Affairs 

External 

Affairs Operations
54 2017 | OFR Annual Report to Congress

OFR Budget and 

Accountability

OFR funds obligated in FY 2017 were 

$92.9 million — 54 percent for labor 

and 46 percent for other expenses (see 

Figure 12). This ratio differs significantly 

from the two-thirds labor, one-third 

nonlabor split in the budgets of most 

agencies, largely due to significant OFR 

expenses for data acquisitions ($8.8 

million) and technology software and 

hardware ($13 million) to support the 

OFR’s unique mandates. 

The OFR is an office within the U.S. 

Department of the Treasury, overseen 

by Congress and government auditors. 

Since its establishment, the OFR has 

answered four audit requests from the 

Government Accountability Office, and 

interviewed for another five; six audits 

by the Treasury Inspector General; and 

one audit by the Council of Inspectors 

General on Financial Oversight. OFR 

leaders have testified before Congress 

on four occasions: Director Richard 

Berner has testified three times as 

Director, and a former Chief Operating 

Officer testified once before the 

Director’s confirmation.

Though part of the Treasury Department, 

the OFR is not funded by annual 

Congressional appropriations, but by 

semiannual assessments from bank holding companies with total consolidated 

assets of $50 billion or more each and 

nonbank financial companies supervised 

by the Board of Governors of the Federal 

Reserve System.

The OFR pays the Treasury Department 

nearly $10 million per year for support 

Figure 12. OFR Funds Obligated in Fiscal Years, 2013 - 2017 ($ thousands)

2013 2014 2015 2016 2017

Compensation 15,339 24,168 29,036 32,485 37,379

Benefits 4,885 7,968 9,507 11,322 13,054

Labor Total 20,224 32,136 38,543 43,807 50,434

Travel 246 296 453 556 447

Communication and Utilities 4,717 5,332 3,811 62 179

Printing and Reproduction 24 27 31 26 22

Other Services 22,683 23,558 25,033 35,794 31,823

Supplies and Materials 3,916 4,947 8,060 8,312 6,508

Equipment 13,495 16,970 8,785 5,997 3,459

Grants 320

Nonlabor Total 45,081 51,130 46,173 51,067 42,439

TOTAL 65,305 83,266 84,716 94,874 92,873

Note: Other services include rent and administrative support for human resources, conferences and 

events, facilities, and procurement.

Source: OFR analysis
Meeting Our Mission 55

for OFR human resources, budget, 

travel, and acquisitions activities. In 

addition, the Office pays Treasury more 

than $6 million annually for information 

technology circuits; payroll services; 

and agency-wide systems for training, performance management, and 

human resources management. The OFR 

Director must consult with the Treasury 

Secretary in establishing the OFR budget 

and workforce.

Information 

Technology

Information Security

Information security is one of the OFR’s 

highest priorities, and we have built a 

strong security and privacy awareness 

program over the past several years 

dedicated to ensuring that our systems 

and our data are secure and will remain 

secure. All OFR employees take annual 

security and privacy training, and 

employees who have access to nonpublic 

data are subject to heightened post-employment restrictions.

The OFR brings large quantities of data 

into its analytical environment, which was 

designed and built specifically for the 

OFR to securely support computing-intensive work with large datasets. In FY 

2017, we renewed our commitment to 

maintaining the confidentiality, integrity, 

and availability of our systems and the 

information they hold. We conducted our 

annual internal and external “penetration tests,” which were completed by an 

independent third party, with no major 

findings identified. We also deployed 

several additional controls and tools that 

strengthened our security posture.

The OFR operates two storage systems. 

One system is used exclusively for 

analytics; the other system is for general 

purposes. One of our projects during FY 

2017 involved enabling the encryption of 

data not being used (referred to as “data 

at rest”) on both systems to boost our 

security.

The OFR follows the National Institute 

of Standards and Technology guidance 

for the implementation and operation 

of a government information security 

program.

Disaster Recovery and Web 

Infrastructure Security

We also reassessed our business needs 

for disaster recovery in FY 2017. The 

OFR has an alternate processing center 

and disaster recovery center outside 

of Washington, D.C. We conducted a 

number of tests using several scenarios to determine that the center would 

be ready in the event of an emergency, 

and we put additional technology and 

controls in place to ensure its readiness. 

The OFR uses this disaster recovery data 

center as an alternate processing center 

and not just as a standby. When not in 

disaster-recovery mode, we maximize 

our investment in this resource by using 

it for additional computing power for the 

OFR’s day-to-day operations.

During the year, we also assessed our 

public website, financialresearch.gov, 

and determined that we needed to 

increase the security level of the site’s 
56 2017 | OFR Annual Report to Congress

infrastructure to handle new requirements. In anticipation of creating a 

restricted, password-protected area 

on the website in the future, we built a 

platform that would allow researchers 

or other approved stakeholders from 

outside the OFR (such as the FSOC 

and FSOC members) to have access to 

certain protected resources. This project 

also required creating an authentication 

mechanism and process to ensure only 

selected users approved for access and 

having user accounts and passwords will 

be allowed.

Finally, we upgraded the OFR’s 

mobile-device-management platform, 

increasing the security of our mobile 

phones, while enabling capabilities that 

allow OFR employees to securely use 

on-site services, such as our time-andattendance system.

Technology Projects

When we launched the OFR analytic 

systems at the end of 2013, we decided 

not to use external “cloud” services. 

Cloud services allow organizations to 

pay only for the computing and storage 

capacity they use, instead of procuring, 

creating, and maintaining entire in-house 

systems. Over the past four years, rapid 

technology development and improvements, coupled with improvements in 

security, have advanced external cloud 

options significantly.

Now, our analytic systems are nearing 

the point of requiring significant investment in new machinery and hardware. 

After extensive research and work to 

determine the most cost-effective way 

forward, we launched a project in FY 

2017 to begin to migrate a number of 

our systems to the cloud. Consequently, 

the eventual cloud migration of key 

services guided many decisions we made 

during the year about architecture, new 

investments, ongoing maintenance and 

support arrangements, and our existing 

product portfolio. 

To support a cloud migration, we also 

developed a new system architecture 

that effectively and efficiently ties internal systems with cloud and Web-based 

systems, and we made prudent investments in new technology for internal 

systems.

As a result, we decommissioned several 

systems and discontinued certain products in favor of better and more costeffective alternatives. We also found 

opportunities to reduce or eliminate 

some unused or less-needed services 

and capabilities, develop a streamlined review process for new system 

and software requests, and reduce our 

dependency on less-effective traditional 

database management systems.

We are taking the steps necessary to 

ensure that our cloud infrastructure will 

provide the same level of protections 

as our internal infrastructure, and will 

comply with all federal security guidance.
Meeting Our Mission 57

Other Initiatives

The OFR Technology Center supported a number of other projects during FY 2017, 

including:

■	 redesigning www.financialresearch.gov, our public website;

■	 developing publicly available monitoring tools;

■	 enhancing our internal knowledge catalog and metadata repository;

■	 helping OFR researchers and analysts make the best use of the power of our 

analytic systems, reducing the processing time of models that require high-performance or high-volume computing;

■	 upgrading our internal collaboration and workflow automation platform; and

■	 expanding use of our chart and data automation systems.

2017 redesign of the OFR website, FINANCIALRESEARCH.gov
58 2017 | OFR Annual Report to Congress

SUPPORT 

ALTERNATIVE 

REFERENCE RATES 

COLLECT REPO

DATA EVALUATE 

BANKRUPTCY

CHANGES 

CROSS-MARKET 

SURVEILLANCE

BROADER LEI 

ADOPTION MAP 

EFFECTS OF 

CYBERSECURITY 

THREATS
Meeting Our Mission 59

We are basing our agenda for FY 2018 on the needs of our key stakeholders. To implement this agenda, we have identified 

our key stakeholders and their needs and mapped out strategies for 

determining and serving those needs during the year.

Our priorities include:

■	 Support alternative reference rates and collect bilateral repo data – We have 

been collaborating with the Federal Reserve and Federal Reserve Bank of New 

York to develop an alternative to LIBOR, an interest rate benchmark that was 

formerly known as the London Interbank Offered Rate but is now called ICE 

LIBOR (Intercontinental Exchange LIBOR). We also collaborated with the Federal 

Reserve and the SEC on two voluntary pilot projects in 2015 to explore how to 

collect data about bilateral repurchase (repo) agreements and securities lending transactions. In FY 2018, we plan to undertake a rulemaking to establish an 

ongoing data collection covering some repo transactions. These data might 

be useful in calculating the selected LIBOR alternative, called the Secured 

Overnight Financing Rate.

■	 Evaluate potential bankruptcy changes – The OFR and the Government 

Accountability Office are evaluating whether potential changes to bankruptcy 

laws could improve the resolution — successful restructuring or liquidation — of 

a failing systemically important financial institution. As we said in Chapter 1, the 

failure of large and complex financial companies could transmit distress to other 

firms, with potentially adverse consequences for the economy.

■	 Evaluate the value of cross-market surveillance – To understand the vulnerabilities in the financial system that could be exposed by shocks, we are studying 

the interconnectedness of financial markets in cooperation with the SEC and the 

CFTC. This project to assess the cross-market connections arising from the positions of key market participants will help us understand how these connections 

could spread risk through the financial system.

LOOKING AHEAD
■	 Map systemic effects of cybersecurity threats and operational shocks – We 

plan to continue analyzing the threat to financial stability that cybersecurity 

incidents and other operational failures can pose. We described this threat in 

Chapter 1. We also discussed in Chapter 2 our project to combine network analysis with maps (loaded with real-world data) of the financial system to identify 

cybersecurity threats and other operational vulnerabilities.

■	 Bring about broader adoption of the Legal Entity Identifier (LEI) – We support 

a recent recommendation from our Financial Research Advisory Committee to 

spur wider adoption of the LEI — and achieve the full benefits of this essential 

data standard. We are following the recommendation by brokering a series of 

discussions with financial industry executives and government officials to explore 

costs and benefits and identify hurdles that impede widespread adoption. The 

next step will be to find ways to overcome these hurdles.

In the next fiscal year, we also plan to explore financial data services initiatives that 

the FSOC could adopt to increase efficiency by reducing the time and resources 

expended for financial data acquisitions. We are already working with the Treasury 

Department’s Bureau of the Fiscal Service on pilot data acquisition contracts with 

selected FSOC member agencies. These contracts are for procuring financial data 

more efficiently and, potentially, at lower cost.

To increase efficiency, maximize performance, and reduce costs, our Technology 

Center will begin moving our analytic services to the cloud in FY 2018, following the 

plan developed during and after FY 2017. Using cloud services, organizations pay 

only for the capacity they use, rather than developing and maintaining complete 

in-house systems.

We will also relocate our OFR Web infrastructure to a new provider in fiscal 2018. The 

architecture we developed will allow Web and internal and external cloud systems to 

be seamlessly and securely integrated. This new architecture will be the foundation of 

the data-centric capabilities the OFR plans to develop to support FSOC members.

60 OFR 2017 Annual Report to Congress

FINANCIALRESEARCH.gov