Dr. Richard Berner visited NYU Stern recently to discuss his new post as Director of the US Treasury’s Office of Financial Research (OFR), “the first federal agency devoted to quantifying threats to financial stability.” Berner addressed the NYU Stern community about the OFR’s new role in identifying and addressing key risks in financial systems. The Washington Post highlights Dr. Berner and NYU Stern Professors Robert Engle and Bruce Tuckman’s responses to this newly created federal entity.
“That’s a lot of new instrumentation on the dashboard. Could it be enough to keep the economy on the road and crash-free?
Some of the economists who came to see Berner in New York think it might be. One is Robert Engle, the director of Stern’s Volatility Institute, which in recent years has created sophisticated risk indexes. Engle won a Nobel Prize in 2003 for his work developing computer models to measure financial volatility. He sits on an expert panel that advises Berner’s office. In an interview in his office, Engle said it is possible that regulators have enough information, from newly developed tools, to avoid another crisis — if they can summon the will to follow the numbers and move in time to defuse threats. In other words, the issue might be the driver, not the dashboard.
“Enormous amounts of things we know now that we didn’t know before,” Engle said. “And on top of that — and perhaps more importantly — we’ve become more able to act on what we know.”
Other NYU economists worry the Office of Financial Research is chasing a mirage. Bruce Tuckman, a finance professor fresh off a long career in risk management at big Wall Street firms, said the financial system is so complex that a whole control room of indicators wouldn’t suffice to understand it. “That’s the danger with OFR,” he said. “They spend all this time on getting this data that doesn’t tell them where the risks are.”