As the Dodd-Frank law approaches its first birthday, the GOP criticized portions of the legislation at a Congressional hearing, likening the data-centric Office of Financial Research to the bleak authoritarian world imagined by the author of Animal Farm, and also suggested it's a bullseye for hackers.
At an oversight subcommittee hearing late Thursday, Rep. Randy Neugebauer (R.-TX) called the OFR "Orwellian" and said it would have unprecedented access to a "wealth of personal and proprietary corporate data, all in the name of an unattainable goal of preventing the next financial crisis."
Citing recent web attacks on Citi and WikiLeaks-related vulnerabilities, Financial Services Committee Chairman Spencer Bachus (R-AL) said the data held by the OFR would make it a "target rich" environment for hackers and said he was unsure if the office could protect sensitive information. And Rep. Jeb Hensarling (R-TX) said the office is a "hacker's dream and a civil libertarian's nightmare."
Richard Berner, a former Morgan Stanley economist who's setting up the OFR, countered that safety measures are in place and the office will "not collect data for collection's sake."
Republicans have for much of the past year criticized the larger Dodd-Frank law in an attempt to whittle away its regulatory heft. The OFR's data collecting mission had not gotten a lot of public attention in the debate until the past few days.
Established as part of the larger Dodd-Frank reform package, the OFR's stated goal is to improve the quality of financial data in an attempt to avert the conditions blamed for the financial crisis in 2008, namely poor availability of adequate loan, market and borrower data for systemic credit risk evaluation.
The OFR will be housed within the Treasury Department, and will collect and analyze data for the council's use. Among the OFR's powers will be subpoena power to collect information from financial institutions to help another bureau created by the Dodd-Frank law— the Financial Stability Oversight Council—locate threats to market security. But it's still not clear what information the OFR will collect.
Debates over security risk and the role of government aside, the OFR will likely place some strain on bank IT budgets. In an earlier interview with BTN writer Mike Sisk, Andrew Freeman, executive director of the Deloitte Banking Center, argues that since OFR's data requirements are not clear, and might evolve over time, banks need to implement flexible systems that can cope with different kinds of data requests. "Firms are at a crossroads and can't put off technology upgrades much longer," he says.
And John Avery, a partner in SunGard's consulting business, told BTN that one of the "unintended consequences of regulatory reform will be a dramatic increase in the spending on information management."
