The Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted to encourage more transparent and stable financial markets. The legislation includes a number of provisions designed to increase U.S. regulators’ understanding of the financial markets by requiring institutions to improve their data reporting and by giving regulatory agencies significant latitude in the data they collect.
Federal regulators use this information to provide a real-time view of bank performance and market conditions and improve their oversight of the financial system.
As the financial system becomes increasingly complex, data aggregation and storage challenges continue to grow. In order to fulfill their oversight, supervision and enforcement responsibilities, regulators must rapidly adopt new technologies to identify problems in the economy sooner rather than later — thereby helping to forestall the next financial crisis.
Following the 2008 financial crisis, the Federal Reserve System launched the Risk Assessment, Data Analysis and Research (RADAR) group to acquire and centralize a broad array of U.S. consumer credit data — credit cards, auto loans, student loans and mortgages — and make the information available to Fed staff and, in some cases, the public. RADAR has helped the Fed produce timely reports and meaningful insights that inform monetary policy, bank supervision and regulation. While the data warehouse is mainly used for bank surveillance purposes, it has also proved useful in the Fed’s community development initiative.
The Securities and Exchange Commission is similarly beefing up its business intelligence efforts, employing data analytics and increasing the use of dashboards across the organization. For example, the agency recently procured an analytics tool that collects real-time trade data from exchanges and hosts the entire repository of historical market data logs on a virtual private cloud.
The SEC is also planning to develop a system that will allow it to collect, store, manipulate and analyze trades, quotes and orders on stocks and options, as disseminated by national securities exchanges and other trading systems. Analysts within the SEC’s new Office of Analytics and Research will be looking for patterns of disruptive activity and nefarious trading practices.
In the years leading up to the financial crisis, policymakers and investors lacked sufficient data to anticipate emerging threats to financial stability or assess how shocks to one financial firm could affect the whole system. Dodd–Frank established the Office of Financial Research (OFR) within the Treasury Department to improve the quality of financial data available to policymakers and facilitate more robust analysis.
As part of its mandate, the OFR must provide critical information and analytical tools to anticipate and respond to emerging vulnerabilities; make it easier to aggregate and organize data; and maximize data efficiency and security.
The basic idea underlying the OFR’s mission is that better data and analysis can support the design of stronger financial shock absorbers and guardrails to reduce the risk of crises. They can also support earlier warning and effective responses to reduce the effects of crises when they occur, and provide lessons for the future.
Since opening its doors in July 2011, the Consumer Financial Protection Bureau has launched numerous consumer complaint databases. The agency plans to collect data from financial firms and rely on crowdsourcing to inform its oversight efforts. As part of its Project Catalyst, the CFPB now makes consumer credit card complaint information available to the public. The bureau is also able to identify patterns of deceptive and unfair sales and billing practices that have been reported by consumers. It can then use its Big Data analytics to alert credit and debit cardholders to similar charges on their cards and facilitate resolution.