A government report has identified three major threats or areas of vulnerability in the U.S. banking and financial system. The threats involve securities-financing transactions and credit markets, interest rate increases and volatility, and operational risks.
The report was produced by the Office of Financial Research, or OFR, a federal agency created by the Dodd-Frank financial reform law. The OFR, housed within the U.S. Treasury, conducts research and analysis, collects and standardizes data, and develops best practices in risk management on behalf of the public and in support of the Financial Stability Oversight Council, another government agency, and its member agencies.
In a statement, OFR Director Richard Berner said the report documents the agencies' efforts to analyze and monitor the financial system and forces that can disrupt it.
"The office is beginning to deliver on our core mission: to fill critical gaps in financial data and analysis for the benefit of the Financial Stability Oversight Council and, ultimately, the public," Berner said.
The OFR is required to produce the report annually to assess the state of the U.S. financial system and analyze threats to U.S. financial stability.
This year's report covers a broad spectrum of subjects, according to the OFR. Specifically, the report:
- Analyzes threats to financial stability.
- Evaluates "macroprudential," or large-scale risk management, policies.
- Reports findings of OFR research on financial contagion, market liquidity and interconnections among financial institutions and markets.
- Addresses data gaps and OFR's efforts to fill those gaps.
- Promotes data standards to aid future research.
- Discusses the OFR's status in achieving its mission and its future research and data plans.
The report also gives an update on the OFR's progress toward implementation of a global standard that would help identify the distinct legal corporate entity that engaged in any financial transaction. Known as the Legal Entity Identifier, or LEI, this standard would help risk managers and government regulators instantly and precisely identify legal entities across markets and jurisdictions, according to a Treasury Q&A about the standard.
The OFR also has released other reports, established a research grant program and produced 12 new working papers on topics related to financial stability.
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