Berner Defends Treasury Research Office Asset Manager Report

The head of the U.S. Treasury Department’s financial research arm defended a report on asset managers that was criticized by the industry as flawed and inadequate.

Richard Berner, director of the Treasury’s Office of Financial Research, said the September study didn’t evaluate individual firms and couldn’t be “used as the basis” for subjecting any asset managers to Federal Reserve oversight. Berner’s remarks were made in testimony at a Senate Banking subcommittee hearing in Washington today.

Berner reiterated the report’s conclusion that “vulnerabilities in some activities could give rise to threats to financial stability, in particular, risk-taking in separately managed accounts and the reinvestment of cash collateral in securities-lending transactions.”

The research office, or OFR, provides information to the Financial Stability Oversight Council, a group of regulators headed by Treasury Secretary Jacob J. Lew. The council evaluates which non-bank financial companies could pose a threat to stability if they were to fail and can put those firms under Fed supervision. The central bank can then impose stricter capital, leverage and liquidity requirements and demand stress-testing.

BlackRock Inc., Fidelity Investments and the Investment Company Institute, the mutual-fund industry’s trade group, have said money managers aren’t a threat to financial stability. The ICI said in November that the OFR report fell far short of providing the analysis that the oversight council needs.

Emerging Markets

In his testimony, Berner also said the OFR is “carefully” monitoring events in emerging markets. All but seven of 24 developing-nation currencies fell today, with Russia’s ruble and Mexico’s peso losing at least 1.2 percent.

Berner said the OFR is working this year with the Federal Reserve Bank of New York to “improve and expand data that measure activity” in markets including repurchase agreements and securities lending. Disruptions in funding markets, “a sudden, unanticipated rise in interest rates” and excessive credit risk-taking are among the potential threats to financial stability that the OFR has identified, he said.

Berner’s office has more than 190 employees, up from 30 in fiscal year 2011. By fiscal year 2015, the OFR plans to have a “full staff” of 280 people, he said.


At today’s hearing, Senator David Vitter, a Louisiana Republican, said asset-management executives are frustrated with meetings with “stone-faced” government officials whom he said haven’t given the industry enough feedback.

Berner said he thought the meetings were “vigorous” and the OFR had “engaged with” 10 large asset managers.

In a Jan. 27 letter to U.S. Representative Patrick McHenry, a North Carolina Republican, Berner, former chief U.S. economist for Morgan Stanley, defended his qualifications and those of the OFR researchers who wrote the asset management report.

McHenry, chairman of a House Financial Services subcommittee on oversight and investigations, wrote to Berner on Dec. 16 asking whether the researchers responsible for the study had experience in the asset-management industry.

“The report does not appear to meet the minimum threshold for credibility necessary for such a study,” McHenry wrote.

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