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Rocky Starts and Political Machinations

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And so the long process of implementation of the recently passed Dodd-Frank Act begins, cue the lobbying and political wrangling over key appointments, including that of the head of the Office of Financial Research. But given that there is already discussion that changes may need to be made to the reforms just three weeks after the bill was passed, how long is the wrangling set to continue and how will all this impact Obama’s appointment process?

The current furore is over the issue of credit ratings and their place in the assessment of investments and entities within the financial markets. The reforms are aimed at limiting these agencies’ influence on the market but regulators, including the Federal Deposit Insurance Corporation’s (FDIC) chairman Sheila Bair, have raised concerns that the replacements for these ratings are not sufficient. There is therefore a suggestion that regulators may be forced to go back to the drawing board and come back with a more workable option.

This is a rocky start for a piece of legislation that runs to around 2,300 pages and deals with numerous contentious issues, all of which may face similar scrutiny as they come into force. Also in the contentious camp is the appointment of a whole host of new positions, including that of the head of the Office of Financial Research.

US president Barack Obama is faced in the coming months with selecting candidates for around half a dozen major new offices and is due to pick suitable replacements to fill a range of vacant positions at the Fed. Given the scale of this challenge, the president is likely to be open to suggestions from particularly active lobbyists (in much the same manner that the Office of Financial Research managed to find its way into the bill in the first place).

It is no surprise then that industry groups are attempting to influence the selection process already by pitching their favourites on Capitol Hill. It is likely that the most politically savvy will win out, rather than the most suitable candidate for the job. Academics have thus far held a great degree of influence on the process and therefore may be the frontrunners for the role.

However, given the power and the influence that the Office may hold over the industry as a regulatory mandated utility, a preferable option would be to recruit from the data management practitioner community itself. Time will tell whether my cynicism about this route being pursued is justified.

Given that the Office of Financial Research is itself sitting as part of the Treasury, instead of the central bank, which one would expect in this case, it should also be interesting to see how it will interact with the Fed. If one looks at the European example, it is the European Central Bank (ECB) that is seeking to introduce a reference data utility, as it is surely the central bank’s role to scrutinise systemic risk and not that of a Treasury department.

I look forward to seeing the bigger picture in the coming weeks, that is if the appointment process isn’t sidetracked by more political wrangling.

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