Thursday, December 6, 2012

Remarks of Under Secretary for Domestic Finance Mary Miller at the Office of Financial Research (OFR) and Financial Stability Oversight Council (FSOC) Conference on “Assessing Financial Intermediation: Measurement and Analysis”

Remarks of Under Secretary for Domestic Finance Mary Miller at the Office of Financial Research (OFR) and Financial Stability Oversight Council (FSOC) Conference on "Assessing Financial Intermediation: Measurement and Analysis"
Dec 6, 2012

As Prepared for Delivery
WASHINGTON – Good morning and thank you to the OFR and the Council for the opportunity to join you here today.

It is a pleasure for me to note that this is the second annual conference hosted by the OFR and the Council.  These two organizations have come a long way since their creation in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Conferences like this one are a key way that the OFR and the Council are leveraging their expertise by calling on experts from academia, industry, and elsewhere in government to bring diverse perspectives on questions related to system-wide financial stability.

The Dodd-Frank Act designed the OFR to act as a catalyst to foster a broad examination of questions related to financial stability.  One of the OFR’s goals involves cultivating a virtual network of academics, researchers, and others to enrich and expand the OFR’s reach in fulfilling its mission.

The Council and the OFR work together to produce important and timely research and analysis on a range of issues—for example, on the risks presented by money market funds.  In addition, the OFR plays a central role in the international initiative to implement a global data standard to identify uniquely the entities in financial transactions.  This legal entity identifier, or LEI, is essential for governments and the financial industry to assess exposures and interconnections within the vast network of financial market participants.  And both the Council and the OFR have published detailed annual reports to engage the public with their work.

Today’s conference provides an opportunity to build on those accomplishments and to continue a discussion on the best ways to promote financial stability. 

The financial services marketplace is constantly changing, as market participants seek new and better ways to do business, as technology and techniques evolve, and as government adjusts the regulatory and supervisory framework.

This process of evolution creates exciting opportunities, but it also represents a moving target of possible risks that can grow into potential threats to financial stability.  That is where the Council and the OFR come in and that is where this conference will turn its focus.

Before the Dodd-Frank Act, the United States did not have one single agency tasked with looking at systemic risk across the financial system and considering how to respond to it – what we call a macroprudential approach.  That shortcoming resulted in a critical blind spot to risks building in the financial system and, once the crisis began, blocked a clear view of what was happening as the nation plummeted into the financial crisis.

The Council and the OFR are designed to correct that lack of comprehensive vision – to provide visibility across the financial services marketplace and across the areas of the compartmentalized responsibility of federal and state financial regulators.  It also allows us to inspect the inner workings of the financial system for an understanding of the interconnections that can transmit and compound systemic risks.

As 2012 draws to a close and Dodd-Frank implementation continues, our resolve is stronger than ever to resist any attempt to roll back these reforms and return our country to the precarious environment of misplaced incentives and inadequate controls that got us into such serious trouble.

We must also be mindful that, as the economy continues to recover, we must remain vigilant about detecting emerging risks and taking appropriate action.

In my experience, you are never handed the same script for a financial crisis or shock.  The next financial crisis is unlikely to look like the last.  Innovative thinking is essential as we recognize that the past approaches for assessing and managing system-wide risks are inadequate for facing the challenges of today and tomorrow.  New ideas must be applied to these problems and government cannot generate all of the good new ideas on its own.  There must be a partnership with academics, industry, and others—and conferences like this one are incubators for new ideas to emerge and begin to develop.

I would like to thank all of the conference participants for contributing to this effort and for helping to expand our collective knowledge of financial stability.  Your time and energies are providing a valuable service to our country, its economy, and its citizens.