Office of Financial Research

OFR Issues Report Challenging Standard for Identifying Systematically Important Banks


On October 26, 2017, the Office of Financial Research (“OFR”), an arm of the Treasury Department, issued a Report of its Director that challenges the standard set forth in the Dodd-Frank Act for determining which entities are systemically important and should be subject to the supervision of the Federal Reserve because their failure would pose the greatest risk to financial stability.

A new OFR viewpoint, “Size Alone is Not Sufficient to Identify Systemically Important Banks,” argues that a multifactor approach is superior to considering asset size alone to assess a bank’s systemic importance.

The Report observes that regulators already use such an approach to identify global systemically important banks (“G-SIBs”). They consider size and four other factors to measure a bank’s systemic importance: (1) interconnectedness, (2) substitutability, (3) complexity, and (4) cross-jurisdictional activity. The eight G-SIBs based in the United States face the most stringent standards.

The Report further notes that the OFR’s analysis indicates that a multifactor approach could replace the $50 billion asset-size threshold that some U.S. regulations use to identify U.S. banks that are not G-SIBs, but warrant enhanced regulation.

The Report asserts that such an approach could identify a much smaller group of non-G-SIB banks for enhanced prudential standards. Relatively large but less-systemic U.S. institutions might no longer face regulatory costs disproportionate to their importance. Smaller banks that play unique roles in U.S. markets, are more complex, or rely on short-term wholesale funding could continue to face higher standards.

Federal Reserve Seeks Comments on LIBOR Alternatives


On August 24, 2017, the U.S. Federal Reserve requested public comments on a plan for the New York Federal Reserve and the Office of Financial Research to come up with three reference rates based on U.S. Treasuries-backed repurchase agreements (repos). The proposed rates are to be called:

  • Tri-party General Collateral Rate (TGCR)
  • Broad General Collateral Rate (BGCR)
  • Secured Overnight Financing Rate (SOFR)

The most comprehensive of the rates, SOFR, would be a broad measure of overnight Treasury financing transactions and was selected by the Alternative Reference Rates Committee (ARRC) as a U.S. dollar LIBOR alternative. LIBOR is a benchmark for $350 trillion worth of financial products worldwide, including $150 trillion in derivatives.

Public comments on these proposed rates are requested within 60 days of publication in the Federal Register, which is expected shortly, according to a Federal Reserve Board press release. To read the press release, click here.