September 2021 Remarks by Director Falaschetti to the Financial Research Advisory Committee

Welcome to the 18th meeting of the Financial Research Advisory Committee. I am Dino Falaschetti, Director of the Office of Financial Research.

I would like to extend a warm welcome to our committee members. I am also grateful that you continue to take time from your demanding schedules to meet with us and for your willingness to share your advice.

Congress created the OFR to provide the FSOC, and its members, with data and research insights that will help regulators better gauge and understand complex risks to U.S. financial stability. To carry out this vital mission, the OFR monitors and analyzes stress across financial markets, while looking to clarify the causes and the extent of these vulnerabilities.

Since its inception, this committee has weighed in on a variety of topics and offered invaluable advice to the OFR on how to conduct such analysis.

At our previous meeting, you offered several suggestions on how to best quantify the risk to financial stability posed by climate change. These insights helped guide our Office as we engaged in further discussions with the FSOC in response to the President’s Executive Order on climate. With your help, we will continue to dig deeper to better understand these risks.

Looking ahead, the OFR will prioritize research on how increased cybersecurity risks could threaten financial stability. The OFR first discussed this issue in 2016. Since then, we have all witnessed how cyberattacks have grown in sophistication, scope, and severity in recent years. Now cyber risk poses a threat to the economy, as well as, to financial stability. For example, between 2015 and 2020, direct losses from internet crimes in the United States increased 282 percent, while the cost of prevention, in the form of spending on information security increased 77 percent worldwide.¹ Businesses’ investments in basic cybersecurity have helped thwart simple cyberattacks but remain inadequate to defend against increasingly sophisticated operations with greater impact. Given this and other concerning trends, I look forward to hearing your perspectives and what your respective industries have experienced, as well as to our briefing on the cyber landscape later this morning from the National Security Agency.

And finally, as disruptions to public health and other potential stressors evolve, our Office will continue to further its contributions to interagency analyses and information exchanges. Throughout, we will monitor, analyze, and share what we see with our FSOC colleagues, while highlighting and delivering on recommendations and requests for data and research of pressing issues confronting us all.

Now, let me give you a quick overview of today’s agenda. In just a minute, I will ask FRAC Chairman Randy Kroszner and Vice Chairman Tami Longaberger to make introductory remarks. We will then have OFR research staff – Sriram Rajan, Dasol Kim, and Mark Paddrik – present findings from their most recent research on counterparty risk. We welcome input on this important topic from each member of the committee.

At 11:00 a.m. we will have a briefing on the cybersecurity landscape from Neal Ziring, Technical Director for the National Security Agency’s Cybersecurity Directorate. After his remarks, he expects to have time to take two or three questions from committee members.

We then welcome back a former member of this committee, Tom Wipf. Tom chairs the Alternative Reference Rates Committee and has agreed to speak with us about the transition from LIBOR. We will then end our meeting with a discussion about the next meeting and closing remarks, with adjournment by 1:15 p.m.

I want to remind everyone this meeting is public and on the record. Questions and comments will be limited to committee members only. In closing, I would just like to thank you all again for your time and for your commitment to the OFR. I look forward to a productive discussion. I am pleased to introduce Randy Kroszner, our Chairman.

---