[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                        EXAMINING THE OFFICE OF
                           FINANCIAL RESEARCH

=======================================================================

                                 HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 7, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-64
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
              Subcommittee on Oversight and Investigations

                    ANN WAGNER, Missouri, Chairwoman

SCOTT TIPTON, Colorado, Vice         AL GREEN, Texas, Ranking Member
    Chairman                         KEITH ELLISON, Minnesota
PETER T. KING, New York              EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   JOYCE BEATTY, Ohio
DENNIS A. ROSS, Florida              MICHAEL E. CAPUANO, Massachusetts
LUKE MESSER, Indiana                 GWEN MOORE, Wisconsin
LEE M. ZELDIN, New York              JOSH GOTTHEIMER, New Jersey
DAVID A. TROTT, Michigan             VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia            CHARLIE CRIST, Florida
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 7, 2017.............................................     1
Appendix:
    December 7, 2017.............................................    25

                               WITNESSES
                       Thursday, December 7, 2017

Berner, Hon. Richard, Director, Office of Financial Research, 
  U.S. Department of the Treasury................................     4

                                APPENDIX

Prepared statements:
    Berner, Richard..............................................    26

              Additional Material Submitted for the Record

Wagner, Hon. Ann:
    Statement for the record by Lawrance L. Evans, Jr., Managing 
      Director, Financial Markets and Community Investment, U.S. 
      Government Accountability Office...........................   104
    Statement of Eric M. Thorson, Inspector General, Department 
      of the Treasury, Office of the Inspector General...........   115
Beatty, Hon. Joyce:
    American Banker article entitled, ``Mnuchin shows no interest 
      in continuing FSOC's hedge fund inquiry''..................   122
Berner, Richard:
    OFR Annual Report to Congress................................    43

 
                        EXAMINING THE OFFICE OF
                           FINANCIAL RESEARCH

                              ----------                              


                       Thursday, December 7, 2017

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2128, Rayburn House Office Building, Hon. Ann Wagner 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Wagner, Tipton, Ross, Zeldin, 
Trott, Kustoff, Tenney, Hollingsworth, Hensarling, Green, 
Ellison, Cleaver, Beatty, Gottheimer, and Crist.
    Also present: Representative Loudermilk.
    Chairwoman Wagner. The Subcommittee on Oversight and 
Investigations will come to order.
    Today's hearing is entitled ``Examining the Office of 
Financial Research.'' Without objection, the Chair is 
authorized to declare a recess of the subcommittee at any time. 
And without objection, all members will have 5 legislative days 
within which to submit extraneous materials to the Chair for 
inclusion in the record.
    Without objection, the exhibit binder, which is pretty 
heavy here, including the written testimony of the GAO 
(Government Accountability Office), which I note was provided 
to minority staff in electronic format yesterday is entered 
into the record. The Chair now recognizes herself for 4 minutes 
for an opening statement.
    The Dodd-Frank Act requires the Office of Financial 
Research, OFR, to report annually to Congress on threats to the 
stability of the U.S. financial system, the OFR's activities, 
and the key findings from the OFR's research and analysis.
    Today the subcommittee on Oversight and Investigations will 
receive the annual testimony from the Director of the Office of 
Financial Research, Director Richard Berner. In addition, this 
hearing will examine the OFR's work to support the activities 
of the Financial Stability Oversight Council (FSOC), its 
management and structure, and finally its cooperation with 
Congress and oversight bodies such as the Government 
Accountability Office and the Treasury Department Office of the 
Inspector General. Congressional oversight of the OFR is 
limited by its inability to exercise the power of the purse. 
The OFR has the authority to set up its own budget and to fund 
itself outside the congressional appropriations process, making 
them quite unique. In fact, in June of this year, the U.S. 
Department of Treasury issued a report which recommended and I 
quote, ``Congress reform structure and mission of the OFR to 
improve its effectiveness and to ensure greater 
accountability.''
    Furthermore, the Financial Choice Act, which this committee 
passed earlier this year, abolishes the Office of Financial 
Research. And while I am sure our witness this morning will 
argue differently, eliminating the OFR would actually improve 
risk management by creating one less redundant Federal 
bureaucracy. Recent work by this committee has uncovered as 
many as 20 other Federal entities that currently exist and will 
remain in place should the OFR be eliminated.
    Collecting and analyzing data should be streamlined, 
allowing Congress to make informed decisions when crafting 
policy. For example, the Treasury Department where the OFR is 
housed already has an Office of Economic Policy which is 
responsible for analyzing and reporting current and perspective 
economic developments in the U.S. and world economy. Likewise 
the division of financial stability, which is maintained by the 
Federal Reserve performs market surveillance for the purpose of 
identifying threats to financial stability. Congress must 
insist better coordination and eliminate unnecessary layers of 
Federal bureaucracy when they exist.
    And finally, and maybe most troubling is the questionable 
analysis of reports produced by the OFR over the last several 
years. A 2013 OFR report on the asset management industry 
concluded that investment managers and institutions they worked 
for could pose systemic risk to our financial system. That 
report, which was widely criticized by the SEC, Members of both 
the House and the Senate, and even former chairman Barney Frank 
puts into question the OFR's effectiveness and capabilities.
    Unfortunately, while the creation of the office might have 
been well intentioned, reports of the mismanagement, 
questionable reports and analysis, redundancy, and the 
inability to fulfill its statutory mandate raise the question, 
why does the OFR exist?
    Director Berner, I look forward to hearing your testimony 
this morning and I yield back the balance of my time.
    I now recognize the gentleman from Texas, Mr. Green, the 
Ranking Member for 5 minutes.
    Mr. Green. Thank you so much, Madam Chair, it is an honor 
to be with you this morning. I thank the witness for appearing 
as well.
    Madam Chair, OFR is a necessary part of the Dodd-Frank 
defense against systemic failure. Some things bear repeating. 
OFR is a necessary part of the Dodd-Frank defense against 
systemic failure. It is the systemic threat sentinel, it looks 
out for the next AIG, the next Bear Stearns, the next Lehman. 
It has an absolutely necessary function in this Dodd-Frank 
legislation, as implemented.
    And as it looks across the economic order, it is looking 
for the 3-7s that we were confronted with in 2008--3 years of a 
fixed rate, 27 years of rates that would bounce around--given a 
teaser rate that would coincide with a prepayment penalty such 
that you could not extricate yourself from a dastardly loan. It 
is looking for the next line of no-doc loans that would allow 
people to just get loans for unusual amounts of money without 
proper documentation.
    It looks out for the interconnectedness between these huge 
mega institutions, institutions that when connected improperly 
can drag down not only this economy, but the economy of the 
world. It is a necessary part of the Dodd-Frank defense against 
systemic failure. FSOC on the other hand is a command center, 
it is the command center, but the sentinel is OFR. OFR is 
necessary.
    Now like many police departments and areas of the Defense 
Department, it has some problems. But when we have problems in 
police departments, not all, some, some areas of the Defense 
Department we don't decide to eliminate the police department, 
we don't decide to eliminate the Defense Department or that 
area that might have a problem, we repair the problem. We don't 
decide that we are going to cut the budget of Defense by 25 
percent because there are problems with some area of the 
Defense Department. We don't decide we are going to cut the 
workforce by 45.5 percent because there are problems in some 
areas of a police department, we fix the problem.
    It makes no sense to cut OFR by 25 percent, the budget. It 
makes no sense to cut the workforce by 45.5 percent. I will 
stand with anyone who wants to correct problems that may exist 
in OFR, but I will stand against everyone who wants to 
eliminate OFR. We worked too hard. It took us many months. And 
the unfortunate thing about producing good legislation is 
people don't remember the crisis sometimes that will become the 
genesis for the legislation.
    It is like when you go to the physician and you have a 
toothache. You are willing to do whatever is necessary to get 
it resolved. Let's get this pain away. We worked hard to 
eliminate the pain in 2008. And now that we have eliminated the 
pain and we have a means by which we can avoid the pain in the 
future, we have forgotten what the pain was like. It is 
difficult to remember the pain from your last toothache, but 
you do remember this, you don't want to get another one. So it 
is important for us to protect OFR and not allow those who 
really want to eliminate Dodd-Frank--and by the way, I have 
colleagues on the other side who have said as much--those who 
want to eliminate Dodd-Frank start by using this salami 
process, one slice at a time, OFR, Consumer Financial 
Protection Bureau, one slice at a time and then you won't have 
Dodd-Frank, just as we are taking one slice at a time from the 
Affordable Care Act. I yield back my time.
    Chairwoman Wagner. The Chair now recognizes the Vice Chair 
of the Oversight and Investigation subcommittee, the gentleman 
from Colorado, Mr. Tipton, for 1 minute for an opening 
statement.
    Mr. Tipton. Thank you, Chair Wagner, I appreciate you 
holding the hearing today to be able to look at the nature and 
practices of the Office of Financial Research. In September 
2014, Chairman Hensarling was quoted as saying, ``4 years after 
Dodd-Frank's passage it is not readily apparent, what, if 
anything, OFR has contributed to the process of identifying, 
mitigating systemic risk.'' 3 years after that statement, it is 
still not clear to this committee that OFR's fulfilling its 
statutory purpose, a purpose that Director Berner himself 
recently called an extraordinarily broad mission.
    Since its inception, OFR has been a fixture of Government 
bureaucracy, riddled with employee dissatisfaction, a lack of 
transparency and accountability, and, at its worst, obstruction 
of the work of another Government agency.
    I am pleased that this committee is taking another hard 
look at OFR and its function here today. I would like to be 
able to thank Director Berner for appearing today and look 
forward to getting a better understanding of his viewpoints.
    Chairwoman Wagner. The gentleman yields back. We now 
welcome our witness, Director Berner. Today's witness is the 
honorable Richard Berner, Director of the Office of Financial 
Research was confirmed by the U.S. Senate in 2013. Prior to his 
role as director, Dr. Berner served as counselor to the 
Secretary of the Treasury with the responsibility of standing 
up the OFR.
    Before joining Treasury in 2011, Director Berner was co-
head of global economics at Morgan Stanley and chief economist 
at Mellon bank. Director Berner received his doctorate from the 
University of Pennsylvania and his bachelor's degree from 
Harvard University. Without objection, the witness' written 
statement will be made part of the record following his oral 
remarks.
    Once the witness has finished presenting his testimony, 
each Member of the subcommittee will have 5 minutes within 
which to ask questions.
    Director Berner, on the table there are three lights, green 
means go, yellow means you have 1 minute left, and red means 
your time is up.
    With that, Director Berner is recognized for 5 minutes to 
give an oral presentation of his testimony. Director Berner.

            STATEMENT OF THE HONORABLE RICHARD BERNER

    Mr. Berner. Thank you, Chairwoman Wagner, Ranking Member 
Green, and Members of the subcommittee. Thank you for the 
opportunity to testify this morning on behalf of the Office of 
Financial Research. My written testimony covers the subjects 
mentioned in your invitation letter. As background I also 
attached our just released 2017 Annual Report to Congress and a 
new report on OFR workforce culture. We will provide the 
results of the 2017 Federal employee viewpoint survey as soon 
as they are available.
    As you may know, I am leaving the OFR at year's end, so I 
think it is a good time to take stock of where the OFR is now, 
compared with April 2011 when I was counsel to the Secretary 
with responsibility to stand up the OFR. Back then we had four 
staff members and no separate office or infrastructure, just a 
broad mandate to help support U.S. financial stability after 
the worst financial crisis since the Great Depression.
    Today, we have resources to meet our mandate, an expert and 
diverse staff of men and women with the tools needed to do 
their jobs, an office in Washington, a small office in New 
York, and an analytic environment where OFR members securely 
maintain large datasets and conduct computing intensive 
analysis.
    More than 2 years ago we begin to take stock of the OFR, 
resulting in initiatives to strengthen our workplace culture 
and to streamline our functions. I believe those initiatives 
will help us effectively and efficiently meet our mandate and 
maintain the objectivity, integrity, and quality that are the 
hallmarks of our work.
    The OFR mandate is to support its stakeholders, primarily 
the Financial Stability Oversight Council, by improving the 
scope, quality, and accessibility of financial data; assessing 
and monitoring threats to financial stability; and evaluating 
financial stability policies. I have had the privilege of 
serving as the OFR's first director since January 2013, and I 
am proud of the accomplishments that the dedicated OFR 
workforce has made possible.
    For example, the OFR led the international initiative to 
establish the global legal entity identifier (LEI), which is 
like a bar code for precisely identifying parties to financial 
transactions. If the LEI system had been in place during the 
financial crisis, exposures to the failing Lehman Brothers 
would have been easier to identify, assess, and manage.
    The OFR's also collaborating with the Federal Reserve to 
collect data describing repurchase agreements or repose, which 
are critical sources of secured short-term funding across the 
financial system. This data will be used in publishing an 
alternative to LIBOR (London Inter-bank Offered Rate). U.S. 
dollar LIBOR is a benchmark for setting interest rates, and 
trillions of dollars in mortgages, and other financial 
products. Our mandate includes developing new tools to better 
assess and monitor financial system vulnerabilities. We have 
done that with our new financial system vulnerabilities monitor 
and financial stress index. We are also doing that by combining 
network analysis with maps of the financial system to help 
identify potential systemic vulnerabilities from cybersecurity 
incidents.
    Our mandating also includes making data more accessible. We 
have done that with our U.S. money market fund monitor which 
shows developments in these funds by tracking in detail their 
investment portfolios. And it includes evaluating policies, and 
we have done that by researching factors, other than size, to 
assess the systemic importance of banks.
    Our staff delivered these consequential contributions to 
stakeholders despite headwinds from working for a startup amid 
persistant uncertainties from existential threats to the OFR. 
When I first testified before this subcommittee in 2011, I said 
that OFR has mandated to shed light into the dark corners of 
the financial system. Today, we and our stakeholders can see 
into those corners more clearly than ever before. Because this 
work requires ongoing vigilance, that light must continue to 
shine.
    Thank you again for inviting me here today. This oversight 
helps ensure that the OFR is fully transparent and accountable 
in carrying out its mission. We look forward to working with 
you to promote the stability of the Nation's financial system. 
And I am happy to respond to your questions.
    [The prepared statement of Mr. Berner can be found on page 
26 of the appendix.]
    Chairwoman Wagner. The Chair thanks the witness for his 
opening statements. And the Chair now recognizes herself for 5 
minutes.
    Director Berner, in previous testimony before this 
committee you have indicated that you and the OFR had every 
interest in being transparent and accountable, said yet again 
today. Yet as we have already heard today, including written 
testimony from the GAO, you have not. As we have already 
discussed, OFR sets its own budget outside the congressional 
appropriations process, determines the size of its staff and 
their salaries, with no direction from Congress, and has a 
single director, you. I would argue that the OFR is not 
accountable at all.
    Director Berner, isn't the lesson of the CFPB that Congress 
indeed made a mistake in creating agencies with single 
directors who can control every aspect of their agency and are 
unaccountable to Congress, the President, and the public?
    Mr. Berner. Thank you, Congresswoman, for that question. I 
believe that we are accountable in many ways to the Congress 
and to others who oversee us. Hearings such as this one really 
give us an opportunity to explain to you what we are doing and 
the ways that we are doing it.
    In addition, we file quarterly reports to the Congress on 
all of our activities and our budget. And as you know from the 
statute, I am required to consult with the Secretary of the 
Treasury on budget and other matters and there is oversight 
from that.
    Chairwoman Wagner. Let me quickly go back to the GAO audit, 
Director Berner. Quick yes or no, do you feel like your office 
fully cooperated with the GAO in its investigation?
    Mr. Berner. Yes, we have.
    Chairwoman Wagner. What would you say about GAO's 
testimony, that was submitted today, which talked about lengthy 
delays and lack of access? To quote here Director Berner, 
directly from GAO's testimony today. During--and I quote, 
``during the course of our review of OFR we have experienced 
repeated problems with gaining access to both people and 
documents. Many meetings with OFR officials took months to 
schedule, some were canceled with short notice and requests for 
documentation and other information were delayed.'' And it goes 
on, and on, and on sir.
    What would you say about the GAO's testimony today about 
all of the delays and lack of access?
    Mr. Berner. I would say, Congresswoman, that we have 
provided all requested witnesses and documents to the GAO. The 
delays that did occur were the result of scheduling delays on 
both sides of the equation, that those were unfortunate. We did 
have some staff turnover during the period which that audit was 
being conducted. And we understood from our communications with 
the GAO that those had been remedied following a conversation 
between our chief counsel and GAO counsel--
    Chairwoman Wagner. Reclaiming my time, Director, because I 
did want to cover a couple more topics. Let's discuss for a 
minute the workplace culture study, by Charles River Associates 
(CRA), which you, Director Berner actually asked for. Among 
other things, the study identifies concerns from employees that 
ranged from a lack of communication, problems with decision 
making, a lack of direction, a lack of progress and structure, 
and inexperienced and unskilled management.
    A lot of these criticisms from OFR employees, many of whom 
were hired under your watch. What is OFR doing to address the 
concerns identified in this report, sir?
    Mr. Berner. Thank you for that. We did ask for that report 
and we have sought advice from various offices at the Treasury 
who are experts in these matters in order to make that 
engagement.
    We recognized actually when our Federal Employee Viewpoint 
Survey scores began to decline a few years ago that indeed 
there were issues of workplace culture that we needed to 
address. And we did start to address those in several ways. The 
CRA report that you refer to is the latest of those, but it is 
only the latest in a series of efforts that we have been making 
in order to improve workplace culture, decision making, and 
other matters.
    Chairwoman Wagner. I appreciate that, Director Berner, but 
if we are being honest here, when I read the Charles River 
Associates study on the workplace culture of the OFR, which 
states strategic planning continues to be a problem, I had 
concerns.
    When I heard your testimony today that the morale in the 
written testimony, the morale of the OFR was low, it makes one 
wonder about the leadership structure not to mention Director, 
the multiple ongoing audits, investigation of the OFR by the 
Treasury IG, the GAO's testimony today with its harsh criticism 
of your agency, for any agency that is very young, OFR has 
created a workplace that appears to outsiders and insiders to 
be completely dysfunctional. And most concerning, Director 
Berner, is how this atmosphere effects the work product, the 
work product that you are obligated to produce.
    I look forward--my time has expired--to you putting your 
answer out in written form or in some way to explain the volume 
of criticism and reports and information from governmental 
agencies and studies and others that are most concerning 
regarding your agency.
    Mr. Berner. Happy to work with you, Congresswoman, to get 
you what you need.
    Chairwoman Wagner. Thank you. The Chair now recognizes the 
distinguished lady and friend of mine from Ohio, Mrs. Joyce 
Beatty for 5 minutes.
    Mrs. Beatty. Thank you so much, Madam Chairwoman, and it is 
certainly my honor to be here seated next to you.
    And also, Mr. Berner, let me say thank you for your 
testimony. Thank you for your years of service leading the 
Office of Financial Research. And certainly I wish you the best 
of luck in your future endeavors.
    Mr. Berner. Thank you.
    Mrs. Beatty. Now, I am going to try to get a couple of 
questions in within my time. I am going to start, for obvious 
reasons as you certainly know, we are looking at this tax bill 
to say during the 2016 election, President Trump promised the 
American people on several occasions that he was going to close 
the carry interest loophole that hedge funds take advantage of 
to pay lower taxes than every day American people.
    Now I am not aware of any, so my question is going to be 
about the Hedge Fund Working Group. In April 2016, the 
Financial Stability Oversight Council, of which the director of 
OFR is a nonvoting member, released a pubic statement entitled, 
Financial Stability Oversight Council Update on Review of Asset 
Management, Products and Activities. In this report the council 
stated that quote, ``there appears to be a concentration of 
leverage on the economic and corresponding risk exposure of 
hedge funds.'' It went on to state that there is currently no 
single regulator with all the information necessary to evaluate 
the complete risk profiles of hedge funds and suggests that 
there were further analyses that needed to take place.
    We heard from this working group in November 2016 at the 
tail end of the Obama Administration when Deputy Assistant 
Secretary Crane provided an update on the group's progress on 
the council. And after reviewing the FSOC minutes of 2017 under 
the leadership of Treasury Secretary Mnuchin, there doesn't 
appear to be any reference at all or updates by the Hedge Fund 
Working Group. In fact, a couple months ago, the American 
Bankers Association had an article, and Madam Chair, I ask it 
be entered into the record--
    Chairwoman Wagner. So ordered.
    Mrs. Beatty. Mnuchin shows no interest in continuing FSOC's 
hedge find inquiry. It was published and it raises the question 
if Secretary Mnuchin led FSOC, he would disband the working 
group, can you respond to that?
    Mr. Berner. Thanks for your question Congresswoman, I can't 
respond to say what Secretary Mnuchin is doing. But I do know 
that he strongly supports the work of the council to look at 
risk in the financial system and vulnerabilities where they may 
occur. I also know that he strongly supports the work of the 
OFR whose primary purpose is to support the council in a 
variety of ways.
    In particular, in regard to hedge funds--
    Mrs. Beatty. Let me resume my time and ask you, does he 
support the Hedge Fund Working Group?
    Mr. Berner. I don't know whether he supports the Hedge Fund 
Working--
    Mrs. Beatty. Have you received any updates or anything 
about it?
    Mr. Berner. I have not.
    Mrs. Beatty. Would you say morale in an organization can be 
down if people are afraid that they are going to lose their 
jobs?
    Mr. Berner. Yes, I would, Congresswoman.
    Mrs. Beatty. Have you heard anything that you should share 
with us about what people might be thinking--why they would be 
thinking they might lose their jobs?
    Mr. Berner. I think the President's budget, which came out 
in May of this year, indicated that there would be significant 
cuts to the workforce and to the budget of the OFR, and that 
might be one reason, I think that there are efforts to 
eliminate the OFR. So there is a great deal of uncertainty that 
employees are facing.
    Mrs. Beatty. OK. Let me ask you another question. Are you 
aware of video that was uploaded on YouTube from an alleged 
employee at the Office of Financial Research? They had raised 
concerns about disparate treatment of African Americans in the 
workplace?
    Mr. Berner. Yes, I am aware of those.
    Mrs. Beatty. Do you know what is being done about that?
    Mr. Berner. Yes. When we saw those videos, we referred them 
immediately to the Treasury Office of the Inspector General for 
them to look into those videos.
    But I want to say, that in addition, if these expressed 
concerns by employees, and we don't know who produced these, 
but if they express concerns by employees, I want to strongly 
say that we really respect concerns. We want to make sure that 
employees have every opportunity to express their concerns. 
Expressing them in ways other than that would be really good, 
but we want to make sure that employees have every opportunity 
to express their concerns about the workplace and about 
anything else.
    Mrs. Beatty. Thank you. My time has expired.
    Chairwoman Wagner. The gentlelady yields back. The Chair 
now recognizes the gentleman from Colorado, the Vice Chair of 
the Oversight and Investigations Subcommittee, Mr. Tipton for 5 
minutes.
    Mr. Tipton. Thank you, Chairwoman. And, Director, again, 
thank you for being here.
    In its report, at the request of the Chairwoman of this 
committee, the Government Accountability Office identified 
strategic planning as a serious issue facing OFR. Would you say 
that the findings of the GAO in this report had merit?
    Mr. Berner. Congressman, I would say the findings of the 
GAO really overlook a lot of the things that we have been doing 
in the Office of Financial Research.
    Mr. Tipton. So you see no merit on the findings?
    Mr. Berner. I think that the efforts we have been making 
can be improved and we are taking steps to improve them. But I 
would not say that there are no efforts and that those efforts 
have gone without producing any results.
    Mr. Tipton. How is the OFR supposed to achieve its 
statutory mandates under your supervision?
    Mr. Berner. First and foremost, as I mentioned earlier, we 
are--our purpose is to serve the needs of the Financial 
Stability Oversight Council and so we want to, and do work with 
the Council in order to understand what they need from us, 
whether it is data or analysis, or something else.
    Second, once we understand that program--and that is an 
ongoing conversation, once we understand that--we organize 
ourselves in the way that the statute recommends and in a way 
that produces the most effective and efficient way of doing 
that. We are working hard on changing that right now, because 
having taken stock of where we are, we are moving forward with 
some changes that will help us make--get more effective and 
efficient, including the strategic planning initiatives that 
you allude to.
    Mr. Tipton. When you are adding--basically with OFR was 
actually a redundancy added on how many other agencies are 
doing analysis and research and followed up with the OFR?
    Mr. Berner. I won't argue that OFR is redundant, I would 
argue that OFR has some unique things that other agencies don't 
that complement their work.
    First, no other agency had the ability to collect data 
across the financial system. And those data are really needed 
to understand systemwide where the risks might be. No other 
agency has access to the data that we have in order to do the 
work that we do. And that really complements the work of other 
agencies.
    Mr. Tipton. In light of your previous testimony regarding 
the critical role that the GAO plays in overseeing OFR I would 
be interested to know your thoughts on the GAO's forced 
suspension of its audits. There were serious concerns that the 
information OFR provided to the GAO, from datasets to staff 
management practices, was unreliable.
    The Government Accountability Office was forced to suspend 
an audit because it couldn't verify if a Government agency 
could be held accountable. Do you see this at all problematic?
    Mr. Berner. Congressman, I have just seen the testimony for 
the first time this morning and it does say there were some 
concerns about whistleblower activity that forced them to 
suspend the audit. But as I mentioned earlier, we have, and 
will, and always do collaborate and cooperate with GAO to give 
them everything that they need to understand what we are doing 
and how we are doing it.
    And as I understand it, that matter was turned over to the 
inspector general at Treasury from what they said here, and 
that they are conducting an investigation. But, I don't comment 
on investigations, that is what is going on there, it depends 
on the Treasury OIG.
    Mr. Tipton. I would be interested, Director, to be able to 
know how you can testify before this committee that when we are 
talking about the transparency being able to get that 
information and accountability that you strongly support the 
GAO's oversight function I assume?
    Mr. Berner. I do.
    Mr. Tipton. And appreciate the constructive work that they 
do in conducting the reviews. If the information provided to 
the GAO, if it is not able to be proven reliable, tell me how 
that works with you?
    Mr. Berner. Congressman, as I said, I cooperate with, and 
my staff cooperates with, the GAO when they engage with them. 
My staff and I meet frequently to understand what the GAO is 
asking for. And my direction to them is to make sure that they 
cooperate fully, that they give them everything that they need. 
And if there are concerns expressed by GAO that they are not 
getting what they need, then we make sure that we get them 
everything that they need.
    As far as this particular audit was concerned, as I 
mentioned there were some delays that were unfortunate. But we 
have been working with the GAO ever since we started the 
organization, want to continue working with the GAO to make 
sure that the oversight that is appropriate and necessary 
really goes forward in a way that it should.
    Mr. Tipton. My time has expired Madam Chair. I yield back. 
Thank you.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Missouri, my friend and 
delegation colleague, Congressman Cleaver for 5 minutes.
    Mr. Cleaver. Thank you Madam Chair.
    Thank you for being here, Mr. Berner.
    Mr. Berner. Thank you.
    Mr. Cleaver. One of my big concerns is if you don't have 
sufficient resources and staff to fulfill your mandated 
responsibility as an agency, then you get blamed for not 
having--not being able to do all the things that we gave for 
you to do. And when I discovered that in the 2018 budget 
release, in May, it required a 25 percent cut, so you were at 
220 something employees, I think you lost 100. Is that about 
right?
    Mr. Berner. Congressman, I think our current workforce is 
at 207.
    Mr. Cleaver. Two hundred seven. So how many staffers have 
you had to eliminate or positions since the budget release for 
2018?
    Mr. Berner. No steps have been taken in that regard yet.
    Mr. Cleaver. Let me ask you another way, are you doing a 
review now to figure out who--what jobs you can eliminate?
    Mr. Berner. We are doing a thorough ongoing review of the 
OFR as I mentioned in my testimony. We are taking stock of what 
we do, how we do it, but with an emphasis on two things. One, 
is to meet our mission, as you said. And second, that, as I 
mentioned earlier, derives from the council's needs, to make 
that as effective and efficient as we possibly can.
    And we think that by doing that review, then we will be 
able to decide in consultation with the Secretary and others at 
Treasury how we should go about doing that and that review is 
ongoing as we speak.
    Mr. Cleaver. Suffice it to say the positions wouldn't have 
been there if you didn't need them. The people--whatever 
changes you make, whatever reductions you make in staff, I am 
saying those positions would never have been created in the 
first place if you didn't need them.
    Mr. Berner. Congressman, when we started the organization, 
as I mention, it was a startup. And I would be the first to say 
that as we looked at the organization as it grew we made 
changes along the way, in organizational structure and skills 
needed. Furthermore, I would argue that the mission changes in 
the sense that the financial system is always evolving and so 
we need to be adaptable and agile in responding to those 
changes.
    So this is not something that is cast in stone, we want to 
be a vibrant organization that really does meet its mission and 
adapts to changing needs, and that is the kind of review we are 
doing right now.
    Mr. Cleaver. All right. Thank you very much. I have been 
here since the creation, I went through the entire Dodd-Frank, 
sometimes 6-hour committee hearings. And I know that your 
agency was--had been beaten, slammed, and thrown under the bus 
and then backed over for lack of transparency. And I think the 
Council then took some steps to say we want full transparency 
and openness, so you opened up to a number of public hearings, 
each year--I am not sure how many you are having now--but where 
the public can come in.
    Mr. Berner. I am happy to appear wherever invited.
    Mr. Cleaver. No, no, no. I am just saying I am curious 
about how many are being held. How many sessions are open now 
to the public?
    Mr. Berner. All of our work is open to the public. So for 
example, we just had two conferences recently, which were open 
to the public, that focused on the issue of fintech and where 
the opportunities in it and risks might be. Those are 
completely open to the public. We webcast them on our website. 
We want to make sure that everything that we do is transparent 
and open to the public.
    Mr. Cleaver. So are there people from the Administration 
attending any of those meetings?
    Mr. Berner. Yes, there are. In fact some people from the 
Administration spoke at those conferences.
    Mr. Cleaver. So where is all of this lack of transparency? 
How do you come up with that? It's a rhetorical question.
    Mr. Berner. I understand.
    Mr. Cleaver. Thank you very much. I yield back.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Michigan, Mr. Trott, for 5 
minutes.
    Mr. Trott. Thank you Chair Wagner. I want to thank the 
director for being with us this morning.
    So you started out in 2013 with four employees in an 
office--no office of your own and now you have 207 employees, 
an office in New York, and an office in Washington. Is that 
correct?
    Mr. Berner. Yes, sir.
    Mr. Trott. That is pretty extraordinary growth in 4 years. 
Wouldn't you say?
    Mr. Berner. Yes. Actually, Congressman, we began a little 
bit before that, but yes, it is.
    Mr. Trott. How many people--what is the most number of 
people you have managed in your prior life perhaps when you 
were chief economist at Morgan Stanley? How many people did you 
manage there?
    Mr. Berner. At Morgan Stanley I had a team of about 60 
people managed on a global basis in every corner of the world.
    Mr. Trott. I am greatly bothered by--and I haven't been in 
Congress that long, but I am greatly bother by the GAO's 
inability to complete its audit. When you first took over the 
position and started to build the office in May 2013, you were 
the keynote speaker at the conference, the Fed conference in 
Cleveland, and you were interviewed. The interview described 
your position as a linebacker, a roving linebacker that doesn't 
have any specific job, but you just fill in the gaps where 
necessary.
    And in that interview you said it is your job to develop 
trust from the other agencies, and to be successful it is going 
to require that you develop a culture of collaboration, 
engagements, and accountability. So certainly it is rhetorical 
for me to ask you this, but you feel like you have accomplished 
that, even though the GAO couldn't complete its audit so that 
the taxpayers could know their money is being spent wisely?
    Mr. Berner. Congressman, I feel that we have really worked 
hard to try to accomplish that and I have acknowledged that we 
need to do more work to get to our aspirations.
    Mr. Trott. So let's talk about some of your good work. So 
your analysis of the asset management industry was roundly 
disparaged by a number of different commentators, specifically 
the bipartisan group Better Markets, which usually calls for 
more heavy Government intervention, said that the OFR report 
adopts an arbitrary analytical framework; it provides literal 
empirical support; it ignores or minimizes the significance of 
relevant factors; and it conveys its finding in such vague and 
amorphous terms that it provides to be of little value and is 
in fact misleading. So that was Better Markets, the Dean of 
Columbia, the Chair of Brookings, the head of Harvard Law 
School, a bipartisan group of Senators all said the report with 
respect to the asset management industry was of no value.
    What happened there, did the OFR drop the ball or do you 
dispute all of the commentators and expert analysis of your 
work?
    Mr. Berner. Congressman, I would say that in that report 
one of the cornerstones of the analysis, the analytical 
framework was an approach which looked at the activities of 
asset managers, rather than at the entities themselves. I think 
you need to look at both, but the activities framework is 
something that is really important for us to all focus on when 
we look at risk in those--in that industry and for that matter 
in others. In fact, in the Treasury Report on Capital Markets 
and the Treasury Report on Asset Managers and Insurers, that is 
the framework that they recommended.
    Mr. Trott. So all these smart people didn't understand the 
purpose of the report. Is that what you are saying?
    Mr. Berner. No. I am simply saying that that was the 
purpose of the report to shed some light on what the industry 
looked like and how to go about looking at risk in it.
    Mr. Trott. So let's go back to Mr. Green's opening 
statement. Did you believe that without the OFR, FSOC could not 
possibly identify an institution that posed a systemic risk or 
that you are critical to that work?
    Mr. Berner. I think the OFR is critical to that work 
because, as I mentioned, we have some authorities, we have some 
capabilities that others don't.
    Mr. Trott. Right. But part of the--earlier my friend from 
Missouri made a comment that you would never of course create a 
position that wasn't necessary. And part of my concern sitting 
here representing the people of the 11th District of Michigan 
and hardworking taxpayers is you have these Government 
bureaucracies that get created with no specific mission that 
oftentimes develop a very problematic culture. I am not sure 
which culture is worse, the culture at OFR or the culture at 
CFPB, but they are both bad from what I have read. And they 
grow, and they grow, and they grow. And that is why people 
coming into D.C. come across the bridge and all they see are 
cranes, there was never a recession in Washington. The 
Government just keeps growing.
    And if it were just the salaries that were the problem, 
then we probably could live with that because we have a $4 
trillion budget so we can have a few extra salaries baked in 
there, but it is stifling the banking industry. And it is 
really death by acronym is what I call it, a bank today has to 
comply with every possible acronym from OFR, to CFPB, to EEOC, 
to every possible acronym that is known to man. And it is 
killing banking, that is why small businesses in my district 
can't get loans.
    But I appreciate your time this morning and I wish you the 
best as you return. I don't know what your plans are when you 
leave in December but maybe it's back to the private sector.
    Mr. Berner. Thank you, Congressman.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognize the gentleman from New Jersey, Mr. 
Gottheimer, for 5 minutes.
    Mr. Gottheimer. Thank you, Madam Chairwoman.
    Mr. Berner, I was reading in the report and quoting from 
page 6 of the OFR Annual Report to Congress, that quote, ``the 
financial system is an attractive target for cyber thieves and 
other hackers because financial companies manage the Nation's 
wealth and handle trillions of dollars in transactions every 
day and that underlie the U.S. economy.''
    So my question, does OFR downsizing risk our ability in 
your opinion to protect our country and our financial 
institutions from cybersecurity attacks? Does it risk our 
overall financial stability? And so if you don't mind 
addressing that I would appreciate it, please.
    Mr. Berner. Thank you, Congressman. I don't think that any 
of us alone has the ability to protect our financial system, 
our economy from cyber attacks. The attacks are going to 
happen. But the work that we do in collaboration with Members 
of the Financial Stability Oversight Council and others and, 
indeed, in partnership with the industry, I think gives us a 
better opportunity to add resilience to the system so that when 
the attacks occur we can understand what their implications 
might be and so that we can minimize the damage.
    Mr. Gottheimer. Thank you. I am good. Thanks. I yield back. 
Thank you.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the gentleman from Tennessee, Mr. 
Kustoff, for 5 minutes.
    Mr. Kustoff. Thank you, Madam Chairwoman. And Director 
Berner, thank you for joining us here this morning. In your 
testimony you mentioned that the OFR supports the FSOC by, 
quote ``Purchasing and securely maintaining more than 65 other 
datasets used by the FSOC staff.'' closed quote. That does seem 
like a large number, 65. Can you tell us how much the OFR 
spends each year on purchasing commercial datasets?
    Mr. Berner. Yes, sir. I would have to go back and look at 
the exact number, but we have a budget for purchasing datasets 
that is roughly $4 million.
    Mr. Kustoff. It seems like somewhere I read that the number 
was between $5.5 and $6 million. Would that be incorrect?
    Mr. Berner. I will go back and check, Congressman, and get 
you the exact number.
    But let me just say that as far as the number is concerned, 
one of the things that we are doing in our review is to make 
sure that we don't purchase or collect any data that aren't 
absolutely necessary. So we are taking a review and really 
looking thoroughly, and working with the council to make sure 
that we make efficient use of our resources.
    Mr. Kustoff. Thank you. The GAO's testimony states that the 
OFR's acting deputy director of research, chief data officer, 
and chief operating officer were unable to respond to GAO's 
questions about the OFR's strategic plan and performance 
measures related to its data collection and data sharing 
functions. Can you tell me how those commercial datasets were 
chosen for purchase?
    Mr. Berner. Yes, Congressman. They were chosen in 
consultation with FSOC. When they had needs for data, we went 
and made sure that those needs were satisfied. In addition, 
when we worked with other agencies, we looked to their needs as 
well and also to the work that the OFR was doing on behalf of 
the FSOC. Some of those data were required for that purpose as 
well.
    Mr. Kustoff. Director, have there been any issues related 
to OFR's ability to handle sensitive data appropriately? And if 
so, if you could tell me what steps OFR has taken to ensure 
that the controls are in place to manage the risk to the 
confidentiality, the integrity, and the availability of 
sensitive data?
    Mr. Berner. Thank you, Congressman, for that question. It 
is a very good one, because there is no priority for us that is 
higher than maintaining the security of data that are entrusted 
to us. We make sure that all of our employees go through 
security training, which is extensive every year and 100 
percent compliant with that. We make sure that all of our 
systems and the way we share data with others is as secure as 
it can possibly be. No data can be taken outside of the OFR 
without an agreement.
    Data that comes in are done under a strict memorandum of 
understanding with the supplying agency. Even those which we 
acquire or get from industry, those are subject to a strict 
memorandum of understanding as well. And those specify the 
purpose for which the data will be used, who will have access 
to the data, how the data will be made secure. When we get data 
from those entities, they come in and actually look at our 
systems to make sure that they are in compliance with the 
security standards that they maintain and we do the same for 
them. So we go to great lengths to make sure that our data are 
kept secure.
    We also go to great lengths, you mentioned integrity of the 
data, we go to great lengths to make sure that the data that we 
have are as high quality as they possibly can be, because you 
can't make good decisions unless you have high quality data.
    So I can talk to you at greater length about that, but we 
work hard on all those things.
    Mr. Kustoff. Thank you, Director. And thank you, Madam 
Chair, I yield back the balance of my time.
    Chairwoman Wagner. The gentleman yields back.
    Pursuant to clause D(4), committee rule 3, the Chair 
recognizes the gentleman from Georgia, Representative 
Loudermilk for an additional 5 minutes upon the conclusion of 
the time allocated under the 5 minute rule.
    Mr. Loudermilk. Thank you, Madam Chair, and thank you for 
the additional time, because this is extremely important. I 
have really some information I would like to understand seeing 
I wasn't here during this time period. I would like to really 
drill down a little deeper on your statement to Chairwoman 
Wagner that you believe OFR fully cooperated with GAO's 2014 
audit.
    In 2014 before this subcommittee you testified and I will 
quote that, ``You wanted to reaffirm that the OFR is fully 
committed to transparency and accountability.'' Director 
Berner, do you still stand by that statement?
    Mr. Berner. Yes, I do.
    Mr. Loudermilk. You do. Regarding transparency and 
oversight when you were before this subcommittee in March 2013 
you testified that, and again I quote, ``As we pursue the OFR's 
agenda we are committed to the highest level of transparency 
and accountability to the Congress and the public. We strongly 
support GAO's important oversight function and appreciate 
constructive work in conducting this review.'' Do you stand by 
that testimony?
    Mr. Berner. I do, Congressman.
    Mr. Loudermilk. Thank you. Maybe this will go a little 
quicker than I thought it would. I appreciate that.
    So I assume that the sentiments you expressed toward OFR's 
cooperation with GAO in support of GAO's functions have 
continued unabated since that time, since March 2013 to the 
present?
    Mr. Berner. That is correct.
    Mr. Loudermilk. Thank you. In February 2014 you testified 
that one of the reasons OFR didn't need additional 
accountability to Congress was that and again I will quote, 
``we are subject to oversight by the various inspector general, 
inspectors general and by the Government Accountability Office, 
which is an arm of Congress. And in fact, when I was here 10 
months ago, I testified on a report about transparency and 
accountability.'' Do you still stand by that testimony?
    Mr. Berner. I do.
    Mr. Loudermilk. Thank you. Director Berner, given these 
prior testimonies which you agree you still stand by today and 
I appreciate that. I wanted to know if OFR engaged and 
repeated, and as it appears, systemic obstruction of the GAO's 
audit of the OFR.
    Mr. Berner. Congressman, I am not aware of any obstruction 
of GAO's audit of the OFR. If I may, we provided all the 
requested witnesses and documents that GAO requested.
    When the audit was closed, we were not made aware of that, 
of the allegations, the reliability of the information provided 
or of any ongoing concerns that GAO might have had.
    Mr. Loudermilk. So your statement here today under oath is 
that you fully cooperated with GAO, you were fully transparent 
with GAO, there was no obstruction, you fully met their 
timelines. Is that what I am hearing you say here today?
    Mr. Berner. With regard to the timelines, as I indicated 
earlier, there were some unfortunate delays in scheduling, but 
we made every effort to make sure that GAO had the information 
that it needed.
    Mr. Loudermilk. Unfortunate would mean unforeseen.
    Mr. Berner. Unforeseen. There were scheduling conflicts. 
They wanted to talk to all the senior staff.
    Mr. Loudermilk. There was no effort to avoid responding to 
GAO's request for meetings?
    Mr. Berner. Absolutely not.
    Mr. Loudermilk. OK.
    Mr. Berner. No, we make every effort to comply with their 
request.
    Mr. Loudermilk. If you will turn to Exhibit 2 in your 
binder, the testimony of Lawrence Evans, Managing Director of 
Financial Markets and Community Investment at GAO. I will give 
you a moment to turn there if you would like. Not too much 
time, I am on a time limit here.
    Mr. Berner. I am ready.
    Mr. Loudermilk. Lawrence Evans the Managing Director of 
Financial Markets and Community Investment at GAO, states, 
``during the course of our review of OFR we experienced 
repeated problems with gaining access to both people and 
documents. Many meetings with OFR officials took months to 
schedule, some were canceled with short notice and requests for 
documentation and other information were delayed. We had to 
make repeated attempts to obtain required documentation and 
schedule interviews with agency officials.
    These attempts included frequent follow-up emails and phone 
calls, the imposition of deadlines for document delivery that 
were either not complied with or resulted in production of 
some, but not all required documents and a discussion between 
GAO counsel and the chief counsel of OFR recording the agency's 
continuing delays. Despite these extensive efforts, we 
experienced significant delays that prevented us from 
completing our audit work within originally planned 
timeframes.''
    Do you not deny those facts?
    Mr. Berner. Congressman, as mentioned earlier, we made 
every effort to comply with GAO's request and as I also 
mentioned my chief counsel in consulting with the chief counsel 
at GAO, I thought we resolved all the difficulties that are 
described. And I just had a look at this this morning. So as 
far as I know, we have really worked hard to make sure we 
overcame those issues.
    Mr. Loudermilk. So really this boils down to, it is not an 
opinion question, it is really yes or no. So do you deny the 
accusations, or the statement that was made by GAO in their 
report that you weren't cooperative?
    Mr. Berner. We made every effort to cooperate with the GAO.
    Mr. Loudermilk. So it is not a yes or no. By what you are 
saying, you are saying no, that the GAO is fabricating their 
report?
    Mr. Berner. I am not saying they are fabricating their 
report. I am saying that there were some delays that we 
acknowledged, but that we made every effort to work with them 
and get them everything they needed.
    Mr. Loudermilk. So you believe that transparency is still a 
vital goal and as you stated strongly support the GAO's 
important oversight function?
    Mr. Berner. Yes, I do.
    Mr. Loudermilk. You believe that this removes the need for 
additional legislative oversight of the OFR, but at the same 
time cooperating with GAO doesn't seem to be--you are stating 
it is a top priority, but GAO is saying it was not a top 
priority.
    Mr. Berner. I am saying we made every effort to comply with 
GAO's request so that we could be transparent and accountable.
    Mr. Loudermilk. It is a little troubling about every 
effort, because how do you define every effort? Is that an 
effort by the standard that you set up or the standards that 
GAO sets up?
    Mr. Berner. Congressman, I can appreciate the fact that 
there were some delays. We want to resolve those problems, want 
to make sure that GAO does have everything that they need to do 
their work, which I think is very important.
    Mr. Loudermilk. Let's take it one step further. Let's look 
at a specific instance from Mr. Evans' testimony, this is in 
Exhibit 2 of page 4, he stated ``OFR delayed and canceled 
meetings. We first emailed the OFR liaison to request an 
entrance conference, a meeting between GAO and the Agency under 
review that marks the beginning of an engagement on February 
6th, 2015. OFR's officials agreed to meet with us in person on 
March 10 in part to accommodate our plans to bring field staff 
to Washington, DC.
    We sent numerous emails to the OFR liaison and attempted to 
confirm the meeting logistics and attendees, but did not 
receive a response. On March 4th we provided OFR with a set of 
questions to guide the entrance discussions. However, on March 
9th, 1 day before we were scheduled to meet, the OFR liaison 
emailed to cancel the meeting.
    Although we provided several options for meeting with the 
agency officials, we were unable to hold the entrance 
conference with OFR until April 8th, more than 2 months after 
our first meeting.''
    Do you dispute those facts?
    Mr. Berner. I don't dispute those facts.
    Mr. Loudermilk. Is this conduct of continuing to delay 
meetings something that is acceptable?
    Mr. Berner. Delaying meetings was certainly not the intent, 
Congressman. Our intent was to try to work with GAO to make 
sure that we got to them, that they got the things that they 
needed, and that we made witnesses available to them on the 
basis that they asked.
    Now, I would say, Congressman, that we did have some 
turnover in the people whom they asked to talk to. People had 
left. We had a hiatus of leadership in certain areas.
    Mr. Loudermilk. But if there was a reason to postpone the 
meeting, you would have let GAO know in advance so they could 
reschedule; is that what you are telling me?
    Mr. Berner. I am telling you that sometimes we let them 
know in advance when we knew the information.
    Mr. Loudermilk. OK.
    Mr. Berner. And so we would--
    Mr. Loudermilk. Let's pursue that for a moment. Are you 
aware of the fact that your senior staff knew about the 
conflicts that led to the cancellation of the entrance 
conference weeks before the conference date and then misled the 
GAO about that fact?
    Mr. Berner. I am not aware of that, no.
    Mr. Loudermilk. We have staff emails. Exhibit 6 is a 
February 18 email in which Alicia Marshall, senior attorney, 
and your counsel office confirms the March 10 entrance 
conference date with GAO.
    Exhibit 7 is an email in which an OFR senior staff member 
declines an invitation to the meeting with GAO because of a, 
quote, ``3-day OFR senior management offsite from March 10 
through 12.''
    Now, that was in March--that was February 20, well in 
advance of the March 10 date. And then Exhibit 8 is a February 
26 email where Alicia Marshall is informed that another two of 
the senior staff members invited to the GAO entrance conference 
interview will be at the leadership offsite, and that is 
February 26, well in advance of the March 10.
    But Exhibit 9 is the March 9 email canceling the March 10 
meeting on less than 1 day's notice and strongly suggesting 
that the cancellation occurred because of a last minute change 
in senior staff's schedules; however, she knew that a month in 
advance, which the prior emails isn't an accurate 
representation, or at least a few weeks in advance, I should 
say.
    Do you deny that?
    Mr. Berner. I certainly--I see the emails in front of me. I 
don't deny their veracity, no.
    Mr. Loudermilk. I appreciate the Chairwoman giving me 
additional time.
    Chairwoman Wagner. A few more seconds to close, Mr. 
Loudermilk.
    Mr. Loudermilk. Thank you, Madam Chairwoman, and I 
apologize for the time I exceeded, but this is very critical.
    And as I look at this, I understand what you are saying, 
and I appreciate you standing by your testimony, but it doesn't 
appear, to me, including whistleblowers telling us that there 
may have been manipulation of data, that you haven't been fully 
transparent, and that there is some evidence of obstruction, 
which seems to be status quo with a lot of our agencies today. 
And I appreciate you being here. I appreciate your answers.
    And Madam Chair, I appreciate the time.
    Chairwoman Wagner. The gentleman's time has expired. The 
Chair now recognizes the Ranking Member, Mr. Green, for 5 
minutes to close.
    Mr. Green. Thank you, Madam Chair.
    Mr. Director, is it your opinion that the financial threats 
to U.S. stability have abated?
    Mr. Berner. Congressman, I think that we have, over the 
past many years since the financial crisis, done things to make 
the financial system more resilient. The financial system is 
always evolving, and new threats can emerge, and it is our job, 
in collaboration with the council, to try to identify where 
those vulnerabilities are, and we need to always be vigilant.
    Mr. Green. There is a recommendation that requires, or 
would require a cut in the amount of funding you receive, 
perhaps as much as 25 percent.
    Would you be able to function efficaciously with a 25 
percent cut?
    Mr. Berner. Congressman, I think that, as I mentioned 
earlier in my testimony, it really is time to take stock of 
where we are in the OFR and to see whether or not we can get 
more effective and efficient. We have discussed options to do 
that with the Secretary and with staff with whom he works, and 
we are looking at those options now to make sure that we use 
our resources in the most effective and efficient way.
    I do believe that the OFR can function effectively and 
efficiency with fewer resources. Just exactly what that looks 
like is really going to depend on what the counsel asks of us 
and what others ask of us.
    Mr. Green. Should I conclude from your testimony, your 
recent statements, that you are here today to testify that OFR 
should be eliminated; that there should be no OFR?
    Mr. Berner. I am here to testify that the work that the OFR 
does is essential, is critical to help policymakers make good 
decisions so that we can make our financial system more 
resilient.
    Mr. Green. And would you agree that there is some amount of 
cut in the budget that would cause OFR to lose its potency, its 
ability to be effective?
    Mr. Berner. I would agree with that, Congressman.
    Mr. Green. Would you agree also that the budget cuts that 
relate to employees, some 40.5 percent by one estimate--I have 
seen another one a little bit higher--would you agree that 
these employees, the elimination of these employees, at some 
point that this would have an impact on your efficiency as well 
as your effectiveness?
    Mr. Berner. I would argue that if the cuts were too deep, 
that that would have a big impact on our efficiency and our 
effectiveness. I would also argue that I have enormous concern 
for the wellbeing and the morale of my employees, and I want to 
make sure that they are treated fairly and in a way that is 
respectful.
    Mr. Green. How do budget cuts and the cuts in staff impact 
morale?
    Mr. Berner. I think, as I mentioned earlier, Congressman, 
that the uncertainty over where a budget is going, over whether 
or not people are going to keep their jobs, I think that 
uncertainty has weighed on morale. There are other factors, but 
I think that that certainly is one of them.
    Mr. Green. And if OFR had been in place in 2008, would it 
have had an impact on the crisis such that it would have 
possibly mitigated it in some way?
    Mr. Berner. I think so. I mentioned earlier that the legal 
entity identifier system, which enabled us to understand who 
owned risk, who owned whom, those things would have really 
helped inform policymakers where the risks were. The work that 
we have done since that time, also would have helped us 
understand better, risk in various parts of the financial 
system, in short-term wholesale funding and derivatives 
markets, and I can give you a complete list of those things. In 
fact, we have written about that subject.
    Mr. Green. Had you, or OFR, the opportunity to look into 
AIG, would you have been able to spot the connectedness that 
AIG seems to have had to so many institutions that were flying 
under the radar, as it were?
    Mr. Berner. I think that we would have done a better job of 
that, for sure.
    Mr. Green. And finally this: You would say to me, without 
question, reservation, hesitation, or equivocation that AFR is 
absolutely, totally, and completely needed?
    Mr. Berner. Absolutely.
    Mr. Green. I yield back.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Minnesota, Mr. Ellison, for 5 
minutes.
    Mr. Ellison. I thank the Chair and the Ranking Member.
    Director Berner, first of all, I just want to say thanks 
for your work and your hard work--
    Mr. Berner. Thank you.
    Mr. Ellison. --In your research analysis. It is helpful to 
have thoughtful analysis about what makes our financial markets 
work better, because ultimately, we are trying to serve people 
and make sure people's lives are better.
    Mr. Berner. I agree with that, Congressman.
    Mr. Ellison. And so if you would, sir, please congratulate 
your staff for the good work they are doing. I know you don't 
get a lot of appreciation. When you go back to your office, 
just let them know that we do--that your work is appreciated.
    Mr. Berner. Thank you, Congressman. I will be sure to do 
that.
    Mr. Ellison. Thank you. Specifically, the slide on the 
``Financial System Vulnerabilities'' is really interesting to 
me. OFR finds some improvements since the financial crisis a 
decade ago. Contagion risk is lower. That is a good thing. And 
it is much less likely that financial stress in one financial 
institution or market is going to spill over into others. I 
think that is a good thing for mom and pop grocery stores, 
homeowners, whoever, it is a good thing. Financial institutions 
are less risky, and they are more solvent and are less highly 
leveraged.
    Do you agree with all that, as my reading of material you 
supplied?
    Mr. Berner. I do, Congressman. And, you indicated, that is 
what we said in our report.
    Mr. Ellison. Yes. Yes. But market risk and credit risk 
remain high, and I would like to just ask you about risks 
facing the nonfinancial institutions.
    I am very concerned about the growing monopolization of 
businesses in our economy. Has OFR looked at market 
concentration and the threat it poses to workers, small 
business, and competition? And let me just add for the record, 
you can hardly look at any industry in our country without 
about three or four big entities controlling 50, 60, 70 percent 
of the market. That is my analysis, not yours.
    But would you please answer whether or not OFR has looked 
at market concentration and the threat it--and what risk it 
might represent to workers, small businesses, and competition?
    Mr. Berner. Congressman, we haven't looked directly at 
concentration in nonfinancial businesses. Others have. I would 
simply say we look at concentration risk in the financial 
services industry and how it might affect financial stability. 
That is certainly one of the things that we do look at.
    For example, if there is an institution that first has a 
virtual monopoly or a large concentration of risk, that is 
something that we want to take into account. But as far as 
nonfinancial businesses are concerned in our economy, there is 
more concentration, and that is something that we need to pay 
attention to as we think about what that means for the economy 
as a whole.
    Mr. Ellison. Thank you. Because as I talked to my 
colleagues, we are all concerned about the falloff in the 
number of startups. What role does the concentration of markets 
have in starting a business? As you monopolize and concentrate, 
maybe it is the barriers that are just tougher than they used 
to be.
    I am not saying that is certainly the case. I am saying it 
is worth some study. And we all say we believe in small 
business, let's think about this.
    So let me jump to another question. We have seen deep cuts 
for regulatory agencies, like the Office of Financial Research, 
are being proposed. Do you have concerns that rewriting the 
rules to benefit banks, Wall Street, hedge funds, could result 
in lower wages, fewer businesses, more monopolies, more 
concentrated markets?
    Mr. Berner. Congressman, I have not written about concerns 
like that, and I would say that before I answer in the 
affirmative, we have to really take a look at those things, but 
I think that it is a reasonable question to ask.
    I think that it is time to take stock of the things that we 
have done, to make the financial system more resilient, and it 
is pretty clear that some tailoring, some adjustments can be 
done.
    One that is very important and that I support, in 
particular, is not having a one-size-fits-all approach to 
financial regulation, so that our community banks are not 
burdened by excessive regulation. That is very important. That 
is something that we talk about with our colleagues at Treasury 
and other financial regulatory agencies.
    Mr. Ellison. All right. I only have 24 seconds left. Could 
you give us an update on LEIs? I was a little late to the 
hearing. If you have a few seconds just to say what you can 
share as to how that is going?
    Mr. Berner. Sure. We have made great progress on that on a 
global basis, but it is not sufficient, and I think it would 
benefit by having U.S. regulators mandate the use of the LEI in 
regulatory reporting. That would actually help reduce the cost 
of regulatory reporting and make the reports more useable by 
regulators and by the public.
    Mr. Ellison. Thank you. I yield back.
    Chairwoman Wagner. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Hollingsworth, for 5 minutes.
    Mr. Hollingsworth. Mr. Berner, I genuinely appreciate you 
being here today. I know that one of the things both sides of 
the aisle are very concerned about is the prevention of a 
future crisis like we saw back in 2008. But I know something I 
am gravely concerned about is employing the same strategy that 
failed to see the 2008 crisis and only doubling down on that 
strategy and expanding that strategy instead of refocusing on 
strategies that have a higher likelihood of reducing the amount 
of systemic risk.
    And to that point, I know one of the primary purposes of 
OFR, at least as put forth in the Dodd-Frank Act, was to 
perform some of the economic research for FSOC. Now, there are 
a variety of other players that do the same thing. Notably, the 
Fed has over 300 PhD economists in its employ, especially in 
the division of financial stability, where the primary mission 
is to, I quote, ``develop and coordinate staff efforts to 
identify and analyze potential risk to the financial system and 
the broader economy, including through the monitoring of the 
asset prices, leverage, financial flows, and other market risk 
indicators.''
    Within this division, the financial macroeconomic stability 
studies section also, specifically researchers, and I quote, 
``linkages between financial stability and macroeconomic 
performances, including the effects of distress of financial 
institutions,'' end quote.
    In addition to that, the Treasury Department has a number 
of other economists in its employ. I guess what I am asking or 
trying to get to is, why does the Federal Government need 
another redundant agency with more redundant employees to do 
the same type of research?
    Mr. Berner. Congressman, as I mentioned earlier, we have at 
least two unique features that make us good partners for the 
Federal Reserve, for the Treasury Department, and indeed for 
the FSOC.
    Our purpose, as I mentioned earlier, is to serve the FSOC's 
needs. Those are, first, that we have access to data that 
others don't. If we can share them with others in the course of 
their work, we do that. But certainly we share the work and 
results that we do.
    And second, we look uniquely across the financial system 
where others cannot. Even the Fed, even others in the financial 
regulatory community don't have that same broad authority that 
we do, and so we work to fill the gaps that they might have 
both in collecting data and in doing the analysis.
    Mr. Hollingsworth. Yes. So taking both of those points, 
which I know you had made before, and I appreciate you 
reiterating. The second one first is this really a nebulous 
concept of looking at systemic risk, and I have heard witness 
after witness after witness come in here and talk about how 
difficult it is to both measure and understand systemic risk.
    And, look, I am just an old business guy, and I feel like 
we have, in this institution, redundancy, and now asking them 
to try to look at and measure something that is really hard to 
understand, nebulous, and maybe, in the end, isn't delivering 
any further protection with regard to all of this research.
    So I guess how do you measure the systemic risk, as you 
look broadly across the economy, and what is it exactly that 
you would measure the effectiveness by which you are looking 
for that?
    Are we just waiting for another crisis?
    Mr. Berner. I am really glad you asked that question, 
Congressman because I am an old business guy myself. Having 
been in business for 30 years. But I actually don't like the 
term ``systemic risk.'' I prefer to look at ``threats to 
financial stability'' because that enables us to look at them 
individually and collectively--both.
    And that is our approach in the Office of Financial 
Research. We look at vulnerabilities in the financial system. 
We have identified them in our reports, including the latest 
one, and we put them together to come up with an assessment of 
overall risks. That is the purpose of the monitoring that we 
do. That is the purpose of collecting the data that we do.
    Mr. Hollingsworth. Yes. So one of the old adages, ``fight 
the last war,'' sometimes we fight the last war instead of the 
next one.
    We had these 300 economists at the Federal Reserve, all of 
whom, presumably, were concerned about macroeconomic stability 
and threats to financial stability, and now, I guess with an 
extra 10 PhDs and an extra 12 PhDs, we should rest at night 
knowing that 312 will do the job where 300 didn't do the job.
    What is unique about your organization that enables them to 
see something that no one has seen before, no economist quite 
understands fully, and that we haven't at least seen the 
results thereof to assure that what we think we are getting we 
are getting, with those taxpayer dollars?
    Mr. Berner. I wouldn't say that we have greater peripheral 
vision than others, but I think we have the ability and the 
authority to look in places that other people aren't looking.
    When you look outside the banking system, you look in 
nonbank financial institutions and how the financial system is 
evolving. Think about innovation, which has enormous benefits 
for the financial system and for the economy. But innovation 
may also carry risks. So we need to understand what those risks 
might be and consider them.
    One of the things that we do in order to do that is to work 
with not just our stakeholders in the Federal Government and in 
the regulatory community, but we also engage with industry to 
understand how they manage their risks and to see what they see 
going on in the financial system.
    Mr. Hollingsworth. I guess taxpayers back home are gravely 
concerned about the level of redundancy that we have in the 
Government, and even more concerned with the significant risk 
and detriment of another financial crisis, that we are doubling 
down on a strategy of we just need a few more people looking in 
a few more places and certainly we will find the problem before 
it becomes an enormous burden on taxpayers, and I worry about 
reiterating that strategy.
    And with that, I will yield back, Ms. Chairman.
    Chairwoman Wagner. The gentleman's time has expired.
    I would like to thank Mr. Berner for his testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    [Whereupon, at 11:23 a.m., the subcommittee was adjourned.]


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