[Congressional Record Volume 156, Number 17 (Thursday, February 4, 2010)]
[Senate]
[Pages S496-S500]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED:
  S. 3005. A bill to create an independent research institute, to be 
known as the ``National Institute of Finance'', that will oversee the 
collection and standardization of data on financial entities and 
activities, and conduct monitoring and other research and analytical 
activities to support the work of the Federal financial regulatory 
agencies and the Congress; to the Committee on Banking, Housing, and 
Urban Affairs.
  Mr. REED. Mr. President, today I introduce the National Institute of 
Finance Act of 2010, which would create an Institute to provide our 
financial regulators with the data and analytic tools needed to prevent 
and contain future financial crises.
  By establishing this new Institute, my bill offers the foundation for 
a new approach to financial regulation that would better protect 
Americans from the financial storm they are currently struggling 
through.
  Over the past 18 months, we have learned that our regulators did not 
have the appropriate tools or knowledge to address risks that cut 
across different markets and sectors of the financial system. The 
recently passed House financial regulatory reform bill and other 
proposals take an important step in filling this huge regulatory gap by 
establishing centralized systemic risk oversight. However, any new 
regulatory structure will be ineffective unless we also equip it with a 
strong, independent, and well-funded data, research, and analytic 
capacity to fulfill its mission.
  The idea for the National Institute of Finance has been endorsed by a 
dedicated group of the Nation's top academic researchers, economists, 
and statisticians--including Nobel Laureate Harry Markowitz--who 
recognize that any financial regulatory reform is incomplete without a 
much stronger data, research, and analytic capability.
  To further explore these issues, I asked the National Academy of 
Sciences in August to study the data and tools needed for systemic risk 
regulation. Among the Academy's findings: that the U.S. currently lacks 
the technical tools to monitor and manage systemic financial risk with 
sufficient comprehensiveness and precision. That market efficiency, in 
addition to regulatory capacity, would be enhanced by improved 
intelligence about what is going on in the system as a whole. And that 
existing capabilities are not a sufficient foundation for systemic risk 
management.

  The bill I introduce today addresses these significant weaknesses by 
creating the National Institute of Finance, whose mission will be to 
support the community of financial regulatory agencies by collecting 
and standardizing the reporting of financial market data; performing 
applied and essential long-term research; and developing tools for 
measuring and monitoring systemic risk.
  The Institute would house a data center that would collect, validate 
and maintain key data to perform its mission, including a central 
database to map the interconnections between financial institutions, 
along with details on their transactions and positions, and their 
valuation of their assets and liabilities. By working with banks and 
other firms to standardize the format of such data and by providing 
standard reference data, such as databases of legal entities and 
financial products, the Institute would reduce the costs to regulators 
and financial institutions from the currently fragmented and 
disorganized systems used to collect and store such information.
  Second, the Institute would contain a research and analysis center to 
develop the needed metrics and then measure and monitor systemic risk 
posed by individual firms and markets. This new Institute would house 
some of the country's most-well-respected researchers to collect and 
analyze the data needed to understand what is happening in our 
financial markets, to conduct investigations of market disruptions, and 
to work with regulators to identify new and dangerous trends.
  It would conduct and help coordinate applied research on financial 
markets and systemic risk, a field that is not well-represented right 
now at the Federal Reserve or within our other regulatory agencies. It 
would also develop the metrics and tools our regulators need to measure 
and monitor systemic risk and help policymakers by conducting studies 
and providing advice on the impact of government policies on systemic 
risk.
  Finally, the Institute would provide independent periodic reports to 
Congress on the state of the financial system, ensuring that we are 
kept apprised of the overall picture of our markets more effectively 
than we have been in the past. The domino effect caused by the 
recession will continue to cripple Rhode Island families and Americans 
across the country unless we put in place a strong new infrastructure 
and shore up our financial markets.
  I hope my colleagues will join me in strengthening our financial 
system by cosponsoring this legislation and supporting its passage.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.

[[Page S497]]

  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3005

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``National 
     Institute of Finance Act of 2010''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

     SEC. 2. FINDINGS AND PURPOSES.

       (a) Findings.--Congress finds the following:
       (1) The United States is experiencing the worst economic 
     and financial crisis since the Great Depression. The nature 
     of the current crisis is systemic. It was set in motion not 
     by the actions of any single entity, but by a loss of 
     confidence throughout the financial system as a whole.
       (2) Such catastrophic events revealed significant 
     shortcomings in the legal tools available to financial 
     policymakers. The scale and systemic nature of the crisis 
     calls for a thorough review of the United States' system of 
     financial regulation, to assess its capacity to understand, 
     monitor, and respond to systemic threats. It is critical that 
     financial regulators have the legal tools they need to act 
     quickly, decisively, effectively, and when appropriate, 
     preemptively, to prevent systemic financial crises in the 
     future and to mitigate their negative impact, should they 
     recur.
       (3) The recent catastrophic events in financial markets 
     also revealed significant gaps in the information and 
     analytic tools available to regulators and policymakers 
     charged with ensuring the health of the financial system.
       (4) Systemic risk involves interactions among financial 
     entities in addition to features of individual firms. 
     Therefore, to understand and monitor the buildup of systemic 
     risk in the financial system requires information about such 
     interactions among institutions.
       (5) Operational methods do not exist by which to measure 
     systemic risks in the United States financial system. Nor do 
     proven operational techniques exist by which regulators can 
     identify the buildup of systemic risks in the United States 
     financial system.
       (6) Regulators do not have effective methodologies for 
     assessing the effects of particular regulatory actions or 
     approaches on the overall health of the financial system.
       (7) Financial regulators do not have the data needed to map 
     the networks of counterparty relationships through which 
     systemic contagion could spread. Nor do they have the 
     analytic tools required to translate such data into useful, 
     actionable information.
       (8) Notwithstanding noteworthy efforts from the research 
     community, sustained, large-scale programs of applied 
     research and development necessary to create operational 
     systems for understanding, measuring, and monitoring systemic 
     risk in financial systems have not emerged.
       (9) There is a substantial amount of high-quality research 
     in academia in relevant disciplines, including financial 
     economics, statistics, and operations research, but such 
     research tends to focus on theoretical or conceptual 
     innovations that are not immediately reducible to operational 
     practice.
       (10) The incentives confronting academic researchers work 
     against the production of research that does not yield novel 
     theoretical insights or computational techniques.
       (11) The challenges of gaining access to data and obtaining 
     funding from government and industry for academic research 
     severely restrict the number of academics working on 
     understanding and monitoring systemic risk in the financial 
     markets.
       (12) Some of the largest commercial firms make substantial 
     investments in research and development in the area of 
     quantitative finance, but such commercial research programs 
     are targeted almost exclusively at applications that create 
     commercial value for the firms undertaking the substantial 
     investments necessary to support the programs, and focus 
     primarily on techniques for pricing particular financial 
     instruments and managing firm-specific risks.
       (13) Financial institutions that sponsor research programs 
     usually protect the results of investigations as commercial 
     trade secrets. Even those results that might be useful in 
     application to the analysis of systemic risk are generally 
     not available to the public.
       (14) No organization anywhere has access to the 
     comprehensive transaction-level data that are necessary to 
     map the network of counterparty relationships in the 
     financial system. Absent such data, it is not possible to 
     evaluate the primary counterparty risks, the extent to which 
     any given firm is vulnerable to the failure of one of its 
     counterparties, or broader counterparty network risks.
       (15) It is not possible to understand, assess, or predict 
     how the collapse of one or more institutions might set off a 
     cascade of failure that destabilizes the entire financial 
     system.
       (16) Without intelligence about the network of counterparty 
     relationships and the liquidity provided by the members of 
     the counterparty network, it is difficult even to identify 
     reliably the set of institutions that regulators should deem 
     to be systemically important.
       (17) Notwithstanding statutory mandates that call for 
     sharing of information among regulatory agencies, United 
     States financial regulators do not require that firms report 
     data in a uniform standard format. The lack of compatibility 
     in the data formats used by different agencies implies in 
     practice that agencies find it difficult and expensive to 
     integrate data from multiple sources.
       (18) In periods of financial crisis such as that 
     experienced in the 2 years preceding the date of enactment of 
     this Act, absence of data comparability becomes a critical 
     handicap, in that dispersed information cannot quickly be 
     integrated into a comprehensive framework that could help 
     reveal the condition of the financial system as a whole. 
     Without a capacity quickly to compare and integrate financial 
     data of diverse types from multiple sources, regulators are 
     unable to analyze the state of the financial system 
     accurately and comprehensively. Nor are they able to foresee, 
     and potentially head off, the onset of a financial crisis.
       (19) The events of September 2008 offer a sobering example 
     of the consequences that can flow from an inability quickly 
     to integrate financial data from diverse sources. During 
     several critical days in that month, senior Government 
     officials contemplated the possible consequences of allowing 
     the failure of Lehman Brothers Holdings, Inc. Insofar as the 
     content of their deliberations is accessible in the public 
     record, there is little evidence that such officials had at 
     their disposal an intelligence system that could illuminate 
     the potential consequences of alternative choices. 
     Notwithstanding that the United States Government, through 
     its several agencies, collects a broad range of information 
     from financial firms, the events of September 2008 revealed 
     that, at this most critical juncture, these data and 
     accompanying analytics could not provide financial officials 
     with the information they needed.
       (20) The creation of a system for collecting and organizing 
     a comprehensive financial transaction database that employs 
     standardized formats is feasible.
       (21) The Enterprise Data Management Council, an industry 
     consortium, is on record as advocating both the feasibility 
     and desirability of bringing uniform standards to the 
     collection, reporting, and management of financial 
     transaction data.
       (22) A leading financial firm has developed for its 
     internal use a system that incorporates comprehensive 
     reference databases of all legal entities in its counterparty 
     network and of all of the many types of financial instruments 
     in which it transacts. Using the system, the firm can compute 
     its exposure to many of their counterparties within an hour.
       (23) A leading information technology firm has developed a 
     prototype of an operational system that would support a 
     comprehensive database of financial instruments and 
     transactions across the entire economy, and in collaboration 
     with other private sector firms and public sector entities, 
     is in the process of developing a prototype system for 
     maintaining the needed system-wide reference databases.
       (24) The community of financial regulators can realize 
     substantial benefits by consolidating into one entity the 
     highly technical tasks of establishing and maintaining 
     uniform standards for reporting financial data, organizing 
     and managing high-volume flows of financial data, providing 
     analytic and high performance computational services, 
     performing applied research and development activities, and 
     conducting, coordinating, and sponsoring essential long term, 
     fundamental research in the field of financial analysis and 
     regulatory intelligence.
       (25) Such technical tasks benefit from increasing economies 
     of scale, the total cost of providing such services to the 
     regulatory community promises to be lower if one agency is 
     tasked to provide all of such data, instead of creating 
     redundant and less effective units in each of the several 
     financial regulatory agencies.
       (26) An entity that provides access to data and analytic 
     tools to all regulatory agencies on a common basis would help 
     to ensure that all agencies are receiving accurate, 
     consistent, comparable data and analytic tools that can be 
     modified for agency-specific needs.
       (27) The creation of an entity that creates shared data and 
     analytic services will provide a natural and regular vehicle 
     for the exchange of research and collaboration between 
     regulatory agencies.
       (28) The emergence of uniform standards for referencing and 
     reporting financial transactions would generate substantial 
     benefits for the financial services industry. There is, at 
     present, no consistent, comprehensive, and universal system 
     for coding, transmitting, and storing financial transaction 
     data. Data reside typically in unconnected databases and 
     spreadsheets, using multiple formats and inconsistent 
     definitions. The routine conduct of business obliges firms to 
     incur substantial costs to translate and transfer data among 
     otherwise incompatible systems. In addition, this data 
     incomparability impedes the ability of companies to assess 
     their risks accurately. The adoption of a common language for 
     data coding and handling would dramatically reduce costs for 
     processing transactions and carrying out other administrative 
     tasks. Standardized reporting would also enable firms to map 
     their counterparty relationships more clearly and more easily 
     understand their

[[Page S498]]

     credit exposures to other firms, a development that promises 
     improvements in risk management practices across the 
     industry.
       (29) In August 2008, the Counterparty Risk Management 
     Policy Group called for the financial industry to move 
     rapidly toward real-time reconciliation and confirmation of 
     financial transactions. Industry experts believe that this 
     change would yield substantial benefits to firms 
     individually, to the financial services industry, and to the 
     economy as a whole. Achieving this goal would not be 
     possible, however, without industry-wide adoption of common 
     standards for coding and handling financial transaction data. 
     Despite the clear benefits of data standardization and 
     despite years of effort by the industry, through consortia 
     such as the Enterprise Data Management Council, the financial 
     services industry has not been able to make meaningful 
     progress towards the goal of universal adoption of uniform, 
     consistent standards for data handling.
       (30) Efforts to see a common set of standards for financial 
     data adopted universally are impeded by so-called ``network 
     effects''. The benefits of adoption for any one firm depend 
     on the extent to which other firms adopt the same common 
     language. For any one institution, the full benefits are 
     distinctly limited until a critical number of participants in 
     the industry adopt the same standards. In light of these 
     network effects, the adoption of a single data handling 
     standard by all industry participants presents a daunting 
     coordination challenge. Each individual firm is discouraged 
     from making the substantial investments required to upgrade 
     its own systems, unless and until they receive assurance that 
     others in the industry will follow suit. Many firms are 
     deferring significant upgrades to their systems until well-
     defined industry-wide standards are accepted.
       (31) The financial services industry's historical 
     experience strongly suggests that the industry is unlikely to 
     achieve universal adoption of a single data-handling standard 
     on its own initiative, through either the decentralized 
     actions of industry participants or through voluntary 
     coordination at the urging of industry consortia or trade 
     associations. Standardization of financial data will require 
     an external mandate.
       (32) The new data standards promulgated for reporting by 
     firms will emerge as the de facto standard for data 
     management in the finance industry, a standard on which firms 
     could converge. Firms could then be confident of realizing a 
     significant return on the investment needed to update their 
     internal systems, knowing that other industry participants 
     were doing likewise.
       (33) The establishment of Federal requirements for the 
     maintenance and provision of reference databases and 
     reporting of transactions and position data to a central 
     repository would assure individual institutions of a 
     significant return on the investment needed to update their 
     internal systems. Firms would benefit from not having to 
     maintain their own unique reference databases, standardized 
     reporting would greatly reduce the cost of reconciling trades 
     and other back office activities, and it would give firms a 
     clear map of their counterparty relationships, which would 
     facilitate better risk management across the industry.
       (34) Once achieved, the universal adoption of standard 
     protocols for handling financial transaction data promises to 
     generate significant and sustained improvements in the 
     efficiency and productivity of the financial services 
     industry in the United States. Such improvements will help to 
     secure and maintain the international leadership position of 
     United States capital markets.
       (35) United States regulators must never again find 
     themselves confronting a financial crisis without the full 
     set of legal, data, and analytic tools they need to 
     understand, measure, monitor, and respond intelligently to 
     systemic risks that threaten the stability (of the United 
     States financial system.
       (b) Purposes.--The purposes of this Act are--
       (1) to ensure that the financial regulatory community is 
     equipped fully with the data and analytic tools it needs to 
     fulfill its responsibility to safeguard the United States 
     financial system;
       (2) to reduce the likelihood of another systemic financial 
     crisis occurring;
       (3) to restore integrity and confidence to the financial 
     markets of the United States;
       (4) to provide for the security of the United States 
     economy from potential external threats to the United States 
     financial system;
       (5) to improve the efficiency of the financial markets in 
     the United States;
       (6) to reduce the cost and increase the effectiveness of 
     coordinated financial regulation in the United States;
       (7) to help maintain the leadership position of the United 
     States as home to the most efficient, competitive, and 
     productive capital markets in the world; and
       (8) to help restore and maintain conditions in the United 
     States financial system that will support the creation of 
     wealth and prosperity in the United States.

     SEC. 3. DEFINITIONS.

       In this Act, the following definitions shall apply:
       (1) Financial regulatory agency.--The term ``financial 
     regulatory agency'' means any Federal regulatory agency or 
     body charged with regulating, examining, or supervising a 
     financial entity or activity, including any financial 
     systemic risk council or agency established by Congress.
       (2) Institute; director; board of directors.--The terms 
     ``Institute'', ``Director'', and ``Board of Directors'' mean 
     the National Institute of Finance, the Director thereof, and 
     the Board of Directors thereof, respectively.
       (3) Financial entity.--
       (A) In general.--The term ``financial entity'' means any 
     corporation, partnership, individual, or other organizational 
     form, whether public or private, used to engage in any type 
     of financial activity that may contribute to systemic risk, 
     including any bank, savings association, credit union, 
     industrial loan company, trust, pension fund, holding 
     company, lender, finance company, mortgage broker, broker-
     dealer, mutual fund or other investment company, investment 
     adviser, hedge fund, insurance company, clearinghouse or 
     other central counterparty, exchange, and any other entity or 
     institution that the Director determines, at the formation of 
     the Institute, are necessary for the Institute to complete 
     its duties under this Act.
       (B) Director authority.--The Director may, by rule, add new 
     types of entities or institutions to be treated as financial 
     entities for purposes of this Act.
       (4) Systemic risk.--The term ``systemic risk'' means the 
     risk that a failure or default by a financial entity or 
     entities, or exposures to a financial product or products or 
     activity will produce--
       (A) significant disruptions to the operations of financial 
     markets;
       (B) the spreading of financial losses and failures through 
     the financial system; or
       (C) significant disruption to the broader economy.
       (5) Financial contract.--The term ``financial contract'' 
     mean a legally binding agreement between 2 or more 
     counterparties, describing rights, and obligations relating 
     to the future delivery of items of intrinsic or extrinsic 
     value among the counterparties.
       (6) Financial instrument.--The term ``financial 
     instrument'' means a financial contract in which the terms 
     and conditions are publicly available, and the roles of 1 or 
     more of the counterparties are assignable without the consent 
     of any of the other counterparties, including common stock of 
     a publicly traded company, government bonds, and exchange 
     traded futures and options contracts.
       (7) Financial entity reference database.--The term 
     ``financial entity reference database'' means a comprehensive 
     list of financial entities that may be counterparties to 
     financial transactions or referenced in the contractual 
     structure of a financial instrument. For each financial 
     entity, the database shall include, but not be limited to a 
     unique identifier, and sufficient information to 
     differentiate the entity from every other entity, including 
     an exact legal name and an address for each company, and an 
     exact legal name and a social security number for each 
     American citizen. For financial entities that are legally 
     owned by or otherwise contained within other financial 
     entities, the database shall include such information.
       (8) Financial instrument reference database.--The term 
     ``financial instrument reference database'' means a 
     comprehensive list of unique financial instruments. For each 
     financial instrument, the database shall include a unique 
     identifier and a comprehensive description of the contractual 
     structure of the instrument as well as all express terms 
     governing the interpretation and implementation of the 
     contract, including jurisdiction, force majeure, and dispute 
     resolution. The contractual structure shall include the 
     financial and economic obligations and rights, both express 
     and implied, and including through legal agreements such as 
     netting agreements, established among all of the 
     counterparties having identified roles in the contract, 
     including advisors, principals, trustees, custodians, 
     guarantors, prime brokers, executing brokers, clearing 
     brokers, and issuers of securities. An electronic copy of the 
     prospectus for each financial instrument for which a 
     prospectus was created or distributed shall also be contained 
     in the database.
       (9) Financial transaction data.--The term ``financial 
     transaction'' means the explicit or implicit creation of a 
     financial contract where at least one of the counterparties 
     is required to report to the Institute. The data describing 
     the transaction shall include the structure of the contract 
     created in the transaction, as well as all express terms 
     governing the interpretation and implementation of the 
     contract, including jurisdiction, force majeure, and dispute 
     resolution. The contractual structure shall include clearly 
     identified counterparties, clearly identified financial 
     instruments (when used as part of the structure of the 
     contract), and the financial and economic obligations and 
     rights, both express and implied, established among all of 
     the counterparties with identified roles in the contract.
       (10) Position data.--The term ``position'' means a 
     financial asset or liability held on the balance sheet of a 
     financial entity. A new position is created, or the quantity 
     of an existing position is changed, by the execution of a 
     financial transaction involving the financial entity as a 
     counterparty. Position data include--
       (A) the counterparty identifier;
       (B) a contract identifier;
       (C) the role of the counterparty on the transaction;
       (D) a quantity, if applicable;
       (E) a location, if applicable; and

[[Page S499]]

       (F) the valuation of the position for the purposes of the 
     books and records of the financial entity.

     SEC. 4. ESTABLISHMENT OF NATIONAL INSTITUTE OF FINANCE; 
                   ADMINISTRATIVE MATTERS.

       (a) In General.--
       (1) Establishment.--There is established the National 
     Institute of Finance, which shall be an independent 
     establishment, as that term is defined in section 104 of 
     title 5, United States Code.
       (2) Mission.--The mission of the Institute is to support 
     the Federal financial regulatory agencies, including any 
     systemic risk council or agency established by Congress, by--
       (A) collecting and providing data;
       (B) standardizing the types and formats of data reported 
     and collected;
       (C) performing applied research and essential long-term 
     research;
       (D) developing tools for risk measurement and monitoring;
       (E) performing other related services; and
       (F) making the results of its activities available to 
     financial regulatory agencies.
       (b) Director.--
       (1) Appointment.--The Institute shall be headed by a 
     Director, who shall be appointed by the President, by and 
     with the advice and consent of the Senate.
       (2) Term of service.--The Director shall serve for a term 
     of 15 years.
       (3) Executive level and pension.--The position of the 
     Director shall be at level II of the Executive Schedule, and 
     a Director who serves a full term, or becomes disabled and 
     unable to fulfill the responsibilities of the Director after 
     serving at least 10 years, shall receive a pension at 
     retirement equal to the salary of that person in the last 
     year of the term, and that pension shall increase in 
     subsequent years with the increase in the cost of living.
       (4) Vacancy.--In the event that a successor is not 
     nominated and confirmed by the end of the term of service of 
     a Director, the Director may continue to serve until such 
     time as the new Director is appointed and confirmed.
       (5) Prohibition on dual service.--The individual serving in 
     the position of Director may not, during such service, also 
     serve as the head of any financial regulatory agency.
       (6) Responsibilities, duties and authority.--The Director 
     shall have sole discretion to fulfill the responsibilities 
     and duties and exercise the authorities described in this 
     Act, except in cases where specific authorities have been 
     given to the Board of Directors.
       (c) Board of Directors.--The Board of Directors of the 
     Institute shall be comprised of the Director, the Secretary 
     of the Treasury, and the head of each financial regulatory 
     agency.
       (d) Membership of the Director on the Board of Directors.--
     The Director shall serve as a voting member of the Board of 
     Directors and as a member of any financial systemic risk 
     regulatory council or agency established by Congress.
       (e) Funding.--
       (1) Annual budget.--The Director, in consultation with the 
     Board of Directors shall establish the initial annual budget. 
     For all other annual budgets, the Director shall submit an 
     annual budget for the Institute to the Board of Directors not 
     later than April 30 of each year. The Board of Directors may, 
     without amendment, reject the budget with a two-thirds 
     majority vote. Each time a budget is rejected, the Director 
     shall submit a revised budget to the Board of Directors 
     within 60 days, and the Board of Directors may, without 
     amendment, reject the budget with a two-thirds majority vote. 
     If the Board of Directors fails to reject the budget within 
     60 days of submission by the Director, the budget shall be 
     automatically approved. If a new budget is not approved 
     before the existing budget expires, the most recent approved 
     budget shall continue on a pro rata basis. Each submitted 
     budget and all votes by the Board of Directors on each budget 
     shall be part of the public record of the Board of Directors.
       (2) Assessments.--The Institute shall be funded through 
     assessments on the financial entities required to report data 
     to the Institute. The formula by which the budgetary costs 
     are allocated among the reporting entities shall be 
     determined by the Board of Directors. If the Board of 
     Directors fails to establish the formula within 60 days of 
     submission of a budget by the Director, the Director shall 
     determine the formula by which the budgetary costs are 
     allocated among the reporting entities for that year.
       (3) Initial funding and start up.--During the first 4 years 
     of the operation of the Institute, the Institute shall have 
     authority to borrow against future assessment revenue from 
     the Federal Financing Bank. Such borrowed funds shall be paid 
     back to the Federal Financing Bank over a term not to exceed 
     20 years. The Secretary of the Treasury, and any financial 
     regulatory agency, may second personnel to the Institute to 
     assist the operations of the Institute.
       (f) Excepted Service Agency.--The Institute shall be an 
     excepted service agency.
       (g) Personnel.--The Board of Directors may fix the 
     compensation of Institute personnel, without regard to the 
     provisions of chapter 51 and subchapter III of chapter 53 of 
     title 5, United States Code, relating to classification of 
     positions and General Schedule pay rates. The rates of pay 
     and benefits shall be competitive with and comparable to the 
     rates of pay and benefits at Federal financial regulatory 
     agencies that are not covered by title 5, United States Code.
       (h) Non-Compete.--The Director and staff of the Institute, 
     who have had access to the transaction or position data 
     maintained by the Data Center or other business confidential 
     information about financial entities required to report to 
     the Institute, may not, for a period of 1 year after last 
     having access to such transaction or position data or 
     business confidential information, be employed by or provide 
     advice or consulting services to a financial entity, 
     regardless of whether it is required to report to the 
     Institute. Individual staff members who notify the Director 
     of their intention to terminate their employment with the 
     Institute and to seek employment with a prohibited employer 
     or in a prohibited activity, shall be transferred for a 
     period of 12 months to a position that does not provide 
     access to transaction or position data or other business 
     confidential information. For staff whose access to business 
     confidential information was limited, the Board of Directors 
     may provide, on a case-by-case basis, for a shorter period of 
     post-employment prohibition, provided that the shorter period 
     does not compromise business confidential information.
       (i) Advisory Boards.--The Institute shall maintain any 
     advisory boards that the Director determines are needed to 
     complete the mission of the Institute.
       (j) Fellowship Program.--The Institute may establish and 
     maintain an academic and professional fellowship program, 
     under which qualified academics and professionals shall be 
     invited to spend not longer than 2 years at the Institute, to 
     perform research and to provide advanced training for 
     Institute personnel.
       (k) Executive Schedule Matters.--Section 5312 of title 5, 
     United States Code, is amended by adding at the end the 
     following new item:

``Director of the National Institute of Finance.''.

     SEC. 5. ORGANIZATIONAL STRUCTURE; RESPONSIBILITIES OF PRIMARY 
                   PROGRAMMATIC UNITS.

       (a) In General.--The Institute shall carry out its 
     programmatic responsibilities through--
       (1) the Federal Financial Data Center (in this Act referred 
     to as the `` `Data Center' ''); and
       (2) the Federal Financial Research and Analysis Center (in 
     this Act referred to as the `` `Research Center' '').
       (b) Federal Financial Data Center.--
       (1) General duties.--The Data Center shall collect, 
     validate, and maintain all data necessary to carry out its 
     duties, as described in this Act.
       (2) Responsibilities.--The Data Center shall prepare and 
     publish, in a manner that is easily accessible to the 
     public--
       (A) a financial entity reference database;
       (B) a financial instrument reference database; and
       (C) formats and standards for reporting financial 
     transaction and position data to the Institute.
       (3) Data to be collected.--Data referred to in paragraph 
     (1)--
       (A) shall include for each financial entity--
       (i) comprehensive financial transaction data on a schedule 
     determined by the Director;
       (ii) comprehensive position data on a schedule determined 
     by the Director;
       (iii) for each financial instrument in the financial 
     instrument reference database or for any other obligation of 
     a financial entity that is contingent on the value of an 
     observable event, where the observable event is not widely 
     available to the public, the level and changes in the level 
     of these observable events, on a schedule determined by the 
     Director; and
       (iv) any other data that are considered by the Director to 
     be important for measuring and monitoring systemic risk, or 
     for determining the soundness of individual financial 
     entities; and
       (B) may include data regarding policies and procedures, 
     governance, incentives, compensation practices, contractual 
     relationships, and any other information deemed by the 
     Director to be necessary in order for the Institute to carry 
     out its responsibilities under this Act; and
       (C) the Board of Directors may, by a two-thirds vote, 
     exclude financial entities, which, as a group, will not 
     contribute to systemic risk for reasons such as size, nature 
     of their assets and liabilities, volume of transactions, or 
     other reasonable purposes, from reporting data. 
     Notwithstanding such exclusions, financial entities shall 
     comply with all reporting requirements or ensure that 
     reporting requirements are met for any assets or part of 
     their balance sheets that are sold to create a financial 
     instrument or obligation, as described in subparagraph 
     (A)(iii).
       (4) Information security.--The Director and the Board of 
     Directors shall ensure that data collected and maintained by 
     the Data Center are kept secure and protected against 
     unauthorized disclosure.
       (5) Catalogue of financial entities and instruments.--The 
     Data Center shall maintain a catalogue of the financial 
     entities and instruments reported to the Institute.
       (6) Availability to the financial regulatory agencies.--The 
     Data Center shall make data collected and maintained by the 
     Data Center available to any financial regulatory agency 
     represented on the Board of Directors, as needed to support 
     the regulatory responsibilities of such agency.
       (7) Other responsibilities.--The Data Center shall oversee 
     the management of the

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     data supply chain, from the point of issuance, in order to 
     ensure the quality of all data required to be submitted to 
     the Institute.
       (8) Other authority.--The Institute shall, after 
     consultation with the Board of Directors provide certain data 
     to financial industry participants and the general public to 
     increase market transparency and facilitate research on the 
     financial system, so long as intellectual property rights are 
     not violated, business confidential information is properly 
     protected, and the sharing of such information poses no 
     significant threats to the financial system.
       (c) Federal Financial Research and Analysis Center.--
       (1) General duties.--The Research Center shall develop and 
     maintain the independent analytical capabilities and 
     computing resources--
       (A) to measure and monitor systemic risk;
       (B) to perform independent risk assessments of individual 
     financial entities and markets;
       (C) to analyze and investigate relationships between the 
     soundness of individual financial entities and markets and 
     the soundness of the financial system together as a whole; 
     and
       (D) to provide advice on the financial system.
       (2) Responsibilities.--The Research Center shall--
       (A) develop and maintain metrics and risk reporting systems 
     for system-wide risk;
       (B) develop and maintain metrics and risk reporting systems 
     for determining the soundness of financial entities;
       (C) monitor, investigate, and report changes in system-wide 
     risk levels and patterns to the Board of Directors and 
     Congress, including through the collection of additional 
     information that the Director deems necessary to understand 
     such changes;
       (D) conduct, coordinate, and sponsor research to support 
     and improve regulation of financial entities and markets;
       (E) benchmark financial risk management practices and 
     promote best practices for financial risk management;
       (F) at the direction of the Board of Directors, or any 
     member of the Board of Directors, for firms under that 
     member's purview, develop, oversee, and report on stress 
     tests or other tests of the valuation and risk management 
     systems of any of the financial entities required to report 
     to the Institute;
       (G) maintain expertise in such areas as may be necessary to 
     support specific requests for advice and assistance from 
     financial regulators;
       (H) at the direction of the Board of Directors or at the 
     request of Congress, conduct studies and provide advice on 
     financial markets and products, including advice regarding 
     risks to consumers posed by financial products and practices;
       (I) at the direction of the Director, at the discretion of 
     the Board of Directors, or at the request of Congress, 
     investigate disruptions and failures in the financial 
     markets, report findings, and make recommendations to the 
     Board of Directors and Congress; and
       (J) at the direction of the Board of Directors or at the 
     request of Congress, conduct studies and provide advice on 
     the impact of policies related to systemic risk.
       (d) Reporting Responsibilities.--
       (1) Required report.--Commencing 2 years after the date of 
     the establishment of the Institute, the Institute shall 
     prepare and submit an annual report to Congress, not later 
     than 120 days after the end of each fiscal year.
       (2) Content.--The report required by this subsection shall 
     assess the state of the financial system, including an 
     analysis of any threats to the financial system, the status 
     of the Institute's efforts in meeting its mission, and key 
     findings from its research and analysis of the financial 
     system.
       (3) Additional reports.--At the sole discretion of the 
     Director, the Director may initiate and provide additional 
     reports to Congress regarding the state of the financial 
     system. The Director shall notify the Board of Directors of 
     any additional reports provided to Congress.

     SEC. 6. ADMINISTRATIVE AUTHORITIES OF THE INSTITUTE.

       The Institute may--
       (1) require financial entities to report all data and 
     information in conformance with reporting standards, as 
     determined by the Institute, that are necessary to fulfill 
     the responsibilities of the Institute under this Act;
       (2) require reporting on a worldwide basis from the 
     financial entities and affiliates thereof that are organized 
     in the United States;
       (3) require reporting of United States-based activities by 
     financial entities that are not organized in the United 
     States;
       (4) enforce and apply sanctions on all financial entities 
     required to report to the Institute that fail to report data 
     requested by and in standards, frequency, and time frames, as 
     determined by rule or regulation by the Institute;
       (5) share data and information, as well as software 
     developed by the Institute, with other financial regulatory 
     agencies, as determined appropriate by the Board of 
     Directors, where the shared data and software shall be 
     maintained with at least the same level of security as is 
     used by the Institute, and may not be shared with any 
     individuals or entities without the permission of the Board 
     of Directors;
       (6) purchase and lease software;
       (7) sponsor and conduct research projects; and
       (8) assist, on a reimbursable basis, with financial 
     analyses undertaken at the request of governmental agencies, 
     other than financial regulatory agencies.

     SEC. 7. CIVIL PENALTIES.

       Any person or entity that violates this Act or fails to 
     comply with a rule, regulation, or order of the Institute 
     issued under this Act shall be subject to a civil penalty in 
     an amount established by the Institute and published in the 
     Code of Federal Regulations. Each such violation or failure 
     shall constitute a separate civil offense.

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