Given the political wrangling going on over the proposed US Financial Services Bill that is making its way through the Senate at the moment, it was only a matter of time before discussions turned to the proposed data utility in the form of the Office of Financial Research. At the end of last week, US Republican senator Richard Shelby kicked things off by stating before the Senate that he feels the investment to be a costly waste of time and effort.
He put the proposals into the context of the bill as a whole, which he believes is filled with the creation of “massive and intrusive new government bureaucracies”. He said: “This bill establishes overarching bureaucracies without any meaningful protections for our financial privacy rights. Also, the bureaucracies have been designed to address many issues that have little or no bearing on the recent crisis or any financial crisis. It is a pure power grab that can reach into virtually every facet of our economy and it needs to be restrained.”
On the subject of the proposed data utility, Shelby said: “In addition to the new Fed consumer protection bureaucracy, this bill envisions a massive new potentially half billion dollar per year federal bureaucracy called the Office of Financial Research designed to collect ‘granular’ financial data and to construct complex financial models.”
Shelby is referring to proposals in the bill to create an Office of Financial Research, which would include a data centre that would be charged with collecting, validating and maintaining all the required industry data for the monitoring of systemic risk. It is seemingly based on the idea behind the National Institute of Finance (NIF), which has been championed by a number of academics in the US markets and the EDM Council. Much like the NIF, it proposes to establish a data research and analysis centre to monitor systemic risk on behalf of the wider regulatory community.
He is concerned that the utility will be granted “unprecedented authority, including abilities to obtain virtually any type of data it wants from financial companies, to the level of detail of what you buy on your credit card.” Moreover, he feels that the very fact it is aimed at helping Wall Street firms to cut down their data costs with public money is flawed. “This new bureaucracy is also designed to gather data, process it, and then is required to make it available to Wall Street firms so they can cut their costs. Who’s for Wall Street now?”
Given his angle of attack, Shelby may gain some leverage in his argument with a government that is already struggling to get through its key reform proposals. The cost and complexity of establishing the new body is certainly going to be high; the government’s estimates may even be low. US citizens are also likely to be suspicious of the creation of yet another bureaucratic body with powers to access their personal data.
The comments deal the first direct blow to the data related proposals within the bill, but they are unlikely to be the last. The Senate is voting this week on a number of the bill’s proposals and it will be interesting to see what part the utility plays in these discussions.
If you want to read the comments in their full context, the speech is available to view here.