ICYMI: At Hearing, Senator Warren Secures Commitment from OFR Nominee to Use All Tools Available to Address Data Gaps, Secure Financial System
Warren: “By collecting and analyzing critical data from across financial markets, OFR can give regulators and financial institutions the information they need to better monitor and address risks to the financial system wherever those risks occur.”
Washington, D.C. — At a hearing of the Senate Banking, Housing, and Urban Affairs (BHUA) Committee, U.S. Senator Elizabeth Warren (D-Mass.) secured a commitment from Dr. Ron Borzekowski, nominee to lead the Office of Financial Research (OFR), to use all tools available to ensure the safety of our financial markets and address dangerous data gaps to better understand how risks could blow up our financial system. Dr. Borzekowski also committed to fulfilling OFR’s mission laid out by Congress.
Senator Warren, along with Senator Jack Reed (D-R.I.), also sent a letter today to OFR’s Acting Director, James Martin, urging the office to fully utilize its statutory authorities to safeguard our financial system and to answer key questions regarding data gaps identified in OFR’s 2022 Annual Report, including with respect to crypto, climate risk, and hedge funds.
Transcript: Hearings to examine the nominations of Jared Bernstein, of Virginia, to be Chairman of the Council of Economic Advisers, Ron Borzekowski, of Maryland, to be Director, Office of Financial Research, Department of the Treasury, and Solomon Jeffrey Greene, of the District of Columbia, and David Uejio, of California, both to be an Assistant Secretary of Housing and Urban Development.
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Tuesday, April 18, 2023
Senator Elizabeth Warren: Thank you, Mr. Chairman, and thank you to our nominees for being here today.
So the sudden failures of Silicon Valley and Signature banks last month reminded us just how quickly risks that are lurking in our financial system can blow up, forcing regulators to take extraordinary action to stop panic and to protect our economy.
It was a lesson hard learned in 2008, which is why Congress created the Office of Financial Research, or OFR, in the Dodd Frank Act. Now OFR is an independent office within the Treasury Department that was intended to serve as an early warning system to alert financial regulators to emerging risks – the idea is before it's too late. By collecting and analyzing critical data from across financial markets, OFR can give regulators and financial institutions the information they need to better monitor and address risks to the financial system wherever those risks occur.
Dr. Borzekowski, you’ve been nominated to serve as the director of OFR. So let me ask you to explain the role OFR should play in monitoring and providing regulators with a better understanding of the kinds of financial stability risks that helped take down SVB and Signature like interest rate risk and concentrated deposits.
Dr. Ron Borzekowski, Director of Financial Research Designate, Department of the Treasury: Thank you, Senator Warren, for the question and for your leadership. I know a lot of the financial issues post crisis – as you know, we learned a lot in 2008 and 2009 –
Senator Warren: And then forgot it.
Dr. Borzekowski: To your question about the role of the OFR, I believe it begins, as you state, with looking across the landscape, trying to be vigilant in where risks may emerge. That takes some creativity, because by definition, I think as you note there, if they were hiding in plain sight, we would see them. So where are these risks? Where could these risks emerge? And what data therefore should be gathered to confirm that hypothesis or negate it?
That data should be gathered and should be gathered ahead of any potential crisis, which is one of the other things we learned from 2008 and 2009. When things did start going wrong, it was a scramble to get the data necessary. So primarily, I believe it's that data and then the complement to that is the research resources, not only resources to turn those into insights and findings.
Senator Warren: In fact, as I recall, OFR flagged the interest rate risk and other risks in the banking sector and I assume you'd like to stay on top of that if confirmed.
Dr. Borzekowski: If confirmed, I feel it's my duty to fulfill the mission that Congress laid out.
Senator Warren: Yes will do here. Yes, good. Congress gave OFR independence and powerful authorities to do its job to help ensure the safety of our financial system. The problem is, I think that OFR has fallen far short in its mandate for far too long.
Now, one reason OFR has been so ineffective, has been Republican sabotage. The Trump administration’s OFR director narrowed the office's mission. He cut the staff by 60%. He slashed the budget by 25%. There is a particular irony in that because the OFR budget is not paid for by taxpayers; its costs are actually paid by assessments on giant financial institutions.
Dr. Borzekowski, if you're confirmed as OFR director, you will have the authority, in consultation with Treasury Secretary Yellen, to adjust fees on the biggest banks to ensure that OFR has the resources it needs to do its job. If confirmed, do you plan to adjust the fee structure to restore OFR's budget and staff?
Dr. Borzekowski: Senator, if I'm privileged enough to be confirmed, what I am committed to is the mission and to making sure that the OFR has both the staff and the resources and the data it needs to fulfill this critical mission.
Senator Warren: So you're willing to readjust their fee structure and restore the budget and staff?
Dr. Borzekowski: I'm willing to look at all of the tools –
Senator Warren: I’m concerned that I’m not hearing just yes.
Dr. Borzekowski: I am committed to looking at all the resources. I can't speak to –
Senator Warren: That’s a very troubling answer. Undoing the Trump Administration’s sabotage and restoring OFR’s ability to do its job is – in my view – the first critical step. But OFR also has to be willing to use the tools that Congress gave it.
One of those tools is the ability to collect critical data from financial companies, which you talked about earlier. For years, OFR has identified a variety of gaping holes in our data – missing information on climate risk, private funds, crypto, cybersecurity. These data gaps matter because they prevent regulators from better understanding how these risks could blow up our financial system.
Congress anticipated that some financial firms might be reluctant to share the data on these risks that they are taking on, so we equipped OFR with subpoena power. Even so, in the 13 years since OFR was established, it apparently never once has used this authority.
This is why Senator Reed and I recently sent another letter to OFR asking it how it plans to collect the information needed to fill these data gaps.
I realize I’m over – I want to ask one quick question. Dr. Borzekowski, OFR has the explicit statutory authority to collect whatever information our regulators need, but we need leadership willing to use that authority. If confirmed, do you commit to using all of OFR’s tools, including its subpoena power, to bring greater transparency to our financial markets and address these dangerous data gaps?
Dr. Borzekowski: Senator, the statute lays out a number of ways for the OFR to collect data, including subpoena authority, and I commit to gathering the data in whatever way it may be necessary using those authorities –
Senator Warren: That was not the question.
Dr. Borzekowski: – to fulfill the mission.
Senator Warren: That was not the question. Do you commit to using all the tools you've got available?
Dr. Borzekowski: I will use all tools available.
Senator Warren: That’s what I wanted to hear. Thank you.
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