Federal Office of Financial Research Violates Privacy, Produces Little of Value
On November 6th, Director of the Office of Financial Research Richard Berner announced his resignation. He will step down from the agency at the end of the year, prior to the end of his term in 2019. His departure launches Treasury Secretary Steven Mnuchin’s search for a successor, but even more it calls into question exactly what the purpose of the OFR is.
The OFR is one of the most unaccountable agencies in Washington—but it is one that most Americans have never even heard of. The agency sits in the Department of the Treasury, but it is not accountable to the Treasury, nor to anyone else in the government. Its purpose is to collect financial data on all Americans, sharing it with other financial regulators as it sees fit, yet commentators and analysts of all stripes seem unable to find any achievements in its seven years of existence, besides violating civil liberties. These aspects of its existence should trouble all American citizens.
The Office of Financial Research was created in the Dodd-Frank Act after the financial crisis, purportedly to support the Financial Stability Oversight Council (FSOC) with independent research of the risks underlying the economy, in order to help prevent the next financial crisis. However, as Charles Calomiris of the Cato Institute points out, the agency has said nothing about the growing risks in the U.S. real estate market, which many academics worry is showing signs of another bubble.
To support its research goal, the OFR collects and analyzes the financial transactions of millions of Americans. It does so without any opportunity for citizens to opt out; all Americans are subject to its massive data collection. As cyberattacks grow more sophisticated and pose a greater danger to privacy, it is worrisome that one agency can house such sensitive data about millions of Americans. Yet even if a security breach were to occur in the OFR’s records, the President could do nothing about it. Dodd-Frank states that the President cannot remove the head of the OFR for any reason. The most secure position in Washington is no longer the presidency.
A case could be made for keeping the agency alive if it was adding some value for the country. But the OFR would be hard pressed to make this claim. The few responsibilities it actually embraces are performed far better by other government agencies. As former chief economist of the International Monetary Fund Simon Johnson argues, the reports the OFR produces are uninteresting, and its rare briefings to Congress are uninformative. In its 2016 Financial Stability Report, the agency only vaguely discusses the risks to the global economy from persistently low interest rates, offering few details or insights. Other organizations went much further to produce interesting and detailed reports on this topic, such as the IMF and the Federal Reserve Bank of Boston. Most of the research the OFR produces has already been done by other agencies, and done much better.
The original goal of the Office of Financial Research was for it to become an independent, nationally recognized agency performing valuable research and analysis. Sadly, probably owing to its lack of accountability, it has deviated from this goal to the unfocused mess it is today. The American people would be better off without it.