Senate Banking Subcommittee Holds Hearing on Annual Report and Oversight of OFR

The Senate Banking Committee, Subcommittee on Economic Policy, held a hearing, titled “The Annual Report and Oversight of the Office of Financial Research (“OFR”),” to discuss the 2013 OFR Annual Report and its evaluation of the state of the U.S. financial system, as well as the September 2013 Asset Management and Financial Stability Report. 

Lofchie Comment:  Since its release, the Asset Management and Financial Stability Report has drawn substantial criticism from market participants and lawmakers.  For example, immediately after conceding that the activities of asset managers differ from those of banks by being activities that are conducted on an agency basis, the OFR report states: 

“[S]ome types of asset management activities are similar to those provided by banks and other nonbank financial companies, and increasingly cut across the financial system in a variety of ways. For example, asset managers may create funds that can be close substitutes for the money-like liabilities created by banks; they engage in various forms of liquidity transformation, primarily, but not exclusively, through collective investment vehicles; and they provide liquidity to clients and to financial markets.”

Remarkably, this assertion seems to ignore the statement made in the prior paragraph: that asset managers act only as agents – while they may manage vehicles that “provide liquidity,” they do not do so themselves.  In blurring this essential distinction, the OFR has called its own work into question.  

In addition, SEC Commissioner Piwowar has accused the Financial Stability Oversight Committee (“FSOC”), of which OFR is a part, of improperly intruding into the SEC’s authority over investment advisers.  See .

It is not clear whether there is any link between the OFR Report, which suggests that large investment advisers might be topics of systemic regulation, including capital regulation, and the recent NFA proposal that commodity trading advisers be required to maintain capital.

See: OFR Asset Management and Financial Stability Report; 2013 OFR Annual Report; SEC Commissioner Piwowar Speaks on SEC Priorities and Issues of Regulatory Structure (in which Commissioner Piwowar criticizes the FSOC for intruding into the SEC authority over advisers). 

Related news: SIFMA AMG and IAA Criticize OFR Report on Asset Management (November 5, 2013).