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 Remarks by Under Secretary for Domestic Finance Mary Miller to the Office of Financial Research and the Financial Stability Oversight Council conference on “Mapping and Monitoring the Financial System: Liquidity, Funding, and Plumbing”

WASHINGTON – Thank you for that warm introduction, Amias, and good morning to you all.
It is a pleasure for me to be here, not only because of my strong support for the Office of Financial Research and the Financial Stability Oversight Council, but particularly because of the opportunity I’ve had here at the Treasury to watch the OFR and the Council grow and make increasingly meaningful and important contributions to promote financial stability.
I’d like to thank Dick and Amias for their stewardship of these two organizations.
This conference today is just one example of the cooperation between the OFR and the Council, and their continuing commitment to making financial stability a priority among regulators, academics, financial industry professionals, and others across the economics profession.
Other examples are in the day-to-day work of the Council and of its committees, such as the Data Committee and the Systemic Risk Committee. The OFR provides the Council with data and performs key research and analysis to support the Council’s work. A strong relationship between the OFR and the Council is a necessary ingredient for their mutual success.
As I said here during the last OFR-Council conference, no two financial crises are alike. The next financial crisis will most certainly not look like the last one. We need to stay abreast of financial market developments and be vigilant to emerging areas of risk.
The OFR and the Council — and everyone here today — are on the front line of that essential work.
Amias provided you with an overview of today’s agenda. The topics involve questions that lie at the heart of the OFR’s and the Council’s missions. I would like to focus for a moment on one of those topics, which you will explore this afternoon in Session 3.
Research is central to protecting financial stability, and the simple reality is that you cannot do good research without good data. To gain a better understanding of the financial system and its vulnerabilities, risks, and interconnections, we need to fill in missing pieces of financial data — in other words, fill the gaps. Think of a puzzle you’re trying to complete, with so many missing pieces that developing an accurate picture is impossible. By starting to fill in those missing pieces, you can begin to see outlines of a full and accurate picture, allowing you to begin to improve your understanding.
Within that puzzle, one of the key missing pieces of data relates to derivatives, in particular those traded over the counter, such as credit default swaps. Today, you will hear in detail about the challenges presented by the lack of granular, standardized data from swap and trade repositories, where such data now reside.
The financial crisis demonstrated risks in the trading of derivatives, such as the huge exposure to credit default swaps that brought AIG to the brink of failure.
Before the financial crisis, those kinds of derivatives were traded between parties with no central record of who was trading with whom. The size of the market and the exposures within the network of trading connections were hidden from view.
Based on the lessons of the crisis, the Dodd-Frank Act introduced a new requirement that derivatives trades be reported to centralized data warehouses called “swap data repositories.” This requirement holds out the promise of bringing transparency to our derivatives markets.  It is also intended to help regulators and market participants develop more insight into the types and levels of exposure throughout the financial system.
However, a great deal of work still needs to be done to ensure that the data reported by industry and collected by regulators will be as useful as possible or we will be at risk of not achieving that goal.  The data are fragmented, with many different trade repositories, within and across jurisdictions, collecting different kinds information in different ways, keeping us from putting all that information together to develop a full picture of the market.
We need to roll up our sleeves and address any obstacles to making these data useful for market participants and for regulators who are monitoring financial stability. We need to work with the industry and the repositories to establish standards for reporting, so that data can be aggregated and analyzed — in other words, so we can develop a more holistic picture of that puzzle I mentioned earlier.
This is just one of the many challenges that we face as we continue down the path to safer financial markets. If we are to succeed, we will need ongoing assistance from all of you here today and others like you. Government can act as a catalyst but cannot succeed alone.
For that reason, I want to express my gratitude for your attendance and your engagement today, and for everything you will do in the future to support financial stability. I hope that each of you will not only contribute to our collective understanding of financial stability during this conference, but also learn something valuable in the process. Thank you again.
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