Who would have thought it could be possible to compare the CIA, an agency known for its fight against terrorism, to a research office within our Treasury Department? Now though, thanks to the passing of the new financial regulation, that may not be such an unrealistic assessment.
An article in Businessweek reported that Congress has decided to grant the Office of Financial Research (OFR) powers that would enable them to make financial firms turn over confidential information. Not only can this new office demand what was once secret information, such as interest rates on individual loans, but they can also tell financial firms how their data must conform in order to be readily compared. The hope is this information will enable the OFR to spot another potential market catastrophe.
Supporters of the new law and the OFR say the ultimate goal is to help catch the next possible financial crisis as it’s forming, opposed to waiting until it’s too late. However, this new law has raised a lot of questions within the financial community about whether or not it will do more harm than good.
For starters, people want to know how much this is all going to cost. Financial companies have already been slammed with costs to keep up with new compliance policies issued by regulators, and now they have to worry about what was once considered personal information as well. In the end, small financial firms may not be able to keep up with all of these running expenses.
Also the definitive lines that laws are supposed to draw become blurred within the OFR. The law states that the private information acquired needs to be protected. At the same time, the law also states that the OFR is subjected to the Freedom of Information Act, which would allow any U.S. citizen to request and read any, or all of the records held by the OFR. One begins to wonder if the office, by law, has to turn over requested data to the public, how will they protect the confidential data they have collected from banks, hedge funds and brokerages?
So while in theory this office may assist our financial system, I can’t help but think: how are the members of this office supposed to notice market trends and economic facts that everyone else is mysteriously missing? Think of all the expenses that will go into setting up the OFR. Are those expenses worth it? I just don’t believe this is the key to avoiding another fallout such as Lehman’s. This industry needs to learn from our past mistakes and regulators need to have a more watchful eye this time around. But then again, that’s just my opinion. So what do you think?