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    The National Institute of Finance: Providing The Data and Tools Needed To Safeguard The U.S. Financial System

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    Thomas Eugene Day
    The document proposes establishing the National Institute of Finance (NIF) as an independent federal agency to address weaknesses in the current financial regulatory system. The NIF would maintain a repository of financial transaction and position data and have analytical capacity to measure systemic risk. It would collect standardized data from financial entities and provide regulators and researchers access to inform regulatory policymaking and risk assessments. The NIF would be governed by a five-member commission and funded non-appropriately to operate independently and compensate experts. The goal is to establish an organization with the resources and expertise needed to effectively monitor risks to the financial system.

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    The National Institute of Finance: Providing The Data and Tools Needed To Safeguard The U.S. Financial System

    Uploaded by

    Thomas Eugene Day
    40 views14 pages
    The document proposes establishing the National Institute of Finance (NIF) as an independent federal agency to address weaknesses in the current financial regulatory system. The NIF would maintain a repository of financial transaction and position data and have analytical capacity to measure systemic risk. It would collect standardized data from financial entities and provide regulators and researchers access to inform regulatory policymaking and risk assessments. The NIF would be governed by a five-member commission and funded non-appropriately to operate independently and compensate experts. The goal is to establish an organization with the resources and expertise needed to effectively monitor risks to the financial system.

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    Related to OFR and NIF. Part of the Dodd reform legislation

    Original Title

    Mendelowitz Presentation

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    The document proposes establishing the National Institute of Finance (NIF) as an independent federal agency to address weaknesses in the current financial regulatory system. The NIF would maintain a repository of financial transaction and position data and have analytical capacity to measure systemic risk. It would collect standardized data from financial entities and provide regulators and researchers access to inform regulatory policymaking and risk assessments. The NIF would be governed by a five-member commission and funded non-appropriately to operate independently and compensate experts. The goal is to establish an organization with the resources and expertise needed to effectively monitor risks to the financial system.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    40 views14 pages

    The National Institute of Finance: Providing The Data and Tools Needed To Safeguard The U.S. Financial System

    Uploaded by

    Thomas Eugene Day
    The document proposes establishing the National Institute of Finance (NIF) as an independent federal agency to address weaknesses in the current financial regulatory system. The NIF would maintain a repository of financial transaction and position data and have analytical capacity to measure systemic risk. It would collect standardized data from financial entities and provide regulators and researchers access to inform regulatory policymaking and risk assessments. The NIF would be governed by a five-member commission and funded non-appropriately to operate independently and compensate experts. The goal is to establish an organization with the resources and expertise needed to effectively monitor risks to the financial system.

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    of 14

    The National Institute of Finance

    Providing the Data and Tools Needed to


    Safeguard the U.S. Financial System
    Allan I. Mendelowitz
    [email protected]
    The Committee to Establish
    the National Institute of Finance

    AEI Conference on Systemic Risk Regulation


    June 3, 2009
    Current Regulation

    Conceptual flaws in the current approach


    Failure to define and monitor systemic risk
    The whole is greater than the sum of the parts
    Regulating individual institutions does not regulate the
    financial system overall
    Excessive focus on GAAP measures of capital
    Accounting capital is a poor measure of solvency
    Backward looking versus forward looking
    Inadequate focus on probability of insolvency
    Insufficient attention to leverage, cash flows and liquidity

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 2
    Current Regulation
    Weaknesses in implementation
    Inadequate data
    Lehman decision
    Response to Madoff allegations
    Insufficient capacity for risk analytics
    401k QDIA safe-harbor decision of 2007
    Gaps between regulators reports and financial condition
    OFHEO solvency report, July 2008
    Over-reliance on industry for critical analysis
    NRSROs: conflict between rating agencies role and issuers
    Internal risk models (e.g., Basel II, stress tests)
    Model risk: misspecified/misused models (e.g., VaR)

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 3
    Current Regulation
    Current data-collection hodge-podge
    Regulators doing their best,
    but seriously constrained by:
    Scope of authority
    Inability to exploit
    economies of scale
    Result:
    Stove-piping of data and
    analytics
    Limited and infrequent
    data collection

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 4
    Systemic Regulation

    Public debate has focused on:


    The identity of the systemic regulator
    Authorities of the systemic regulator
    On- versus off-exchange trading of derivatives
    Absent from the debate is a discussion of:
    Data requirements
    Analytic capacity requirements
    How regulators will measure and manage systemic risk

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 5
    Introducing the National Institute of Finance

    Mission
    The National Institute of Finance, as an
    independent federal agency, will maintain a
    national repository of financial transaction
    and entity position data, and offer the
    analytical capacity to take full advantage of
    that information.

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 6
    Introducing the National Institute of Finance

    Mission
    The National Institute of Finance, as an
    independent federal agency, will maintain a
    national repository of financial transaction
    and entity position data, and offer the
    analytical capacity to take full advantage of
    that information.

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 7
    Federal Financial Data Center (FFDC)
    The FFDC will collect and manage transaction and position
    data for U.S. based financial entities and their affiliates:
    Develop and maintain standards for reporting
    transaction and position data
    Database of legal entity identifiers
    Database of financial products
    Data format for reporting individual transactions and
    positions
    Collect, clean, and maintain transaction and position
    data in a secure database
    Provide regulators access to the databases
    Provide access to aggregated and/or delayed data to
    improve market transparency

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 8
    Introducing the National Institute of Finance

    Mission
    The National Institute of Finance, as an
    independent federal agency, will maintain a
    national repository of financial transaction
    and entity position data, and offer the
    analytical capacity to take full advantage of
    that information.

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 9
    Risk Analytics

    Data does not by itself constitute useful information.


    Analytical capability to develop systemic risk metrics
    Monitor system-wide risk levels and patterns
    Benchmark industry risk measures and facilitate regulatory
    risk assessments of individual financial entities
    Analytical support for policy makers
    response to financial emergencies,
    after-action analyses of market disruptions (analogous to NTSB)
    Provide advice to Executive and Congress, as requested
    Scientific research into financial markets
    Support regulatory policy
    Continuously improve systemic risk regulation

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 10
    Structure and Governance
    NIF structure and governance
    Independent agency
    corporate culture of quantitative analysis
    Non-appropriated funding
    able to pay above-Title V salaries
    Five-member commission
    appointed by President, Senate confirmation
    Advisory board of financial regulatory leaders

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 11
    Realization

    Some things that appear impossible are merely difficult

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 12
    Realization

    There is an alternative. Do you really want to go there?

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 13
    Thank you!
    www.ce-nif.org

    Committee to Establish the National Institute of Finance


    www.ce-nif.org 14

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