Remarks by OFR Acting Director James Martin at the 2024 Financial Stability Conference

Thank you, Stacey. I appreciate your kind introduction.

Good morning, everyone. I also want to welcome you to day two of the Financial Stability Conference and thank you for joining us.

It is an honor to be here. This is one of my favorite conferences to attend. It offers the opportunity to hear from some of the prominent thought-leaders and experts on topics related to financial stability risks impacting our financial system.

Before diving further into my remarks, I first want to express my deepest thanks to President Beth Hammack, Joe Haubrich, and the entire staff of the Cleveland Fed for their hard work in organizing this conference together with the Office of Financial Research (OFR). I am grateful for our ongoing partnership and shared commitment to understanding how evolving trends will affect financial market stability going forward and what central banks and other institutions can do to foster positive outcomes.

Also, I want to thank the organizing committee for their diligent efforts in identifying and choosing our top-caliber researchers, discussants, and keynote speakers.

And, finally, I want to thank the researchers and discussants for sharing their research, insights, and expertise during our conference. Day one’s presentations and panel discussions were impressive and informative. I am eager to hear more interesting discussions today as well.

Given today’s ever-changing risk landscape, the theme of this year’s conference, “Emerging Risks in a Time of Interconnectedness and Innovation,” is very much a timely and crucial topic for us to discuss.

As we have heard so far during the conference, our markets and financial institutions are increasingly interconnected, which increases the risk of contagion in our financial system. Financial crises and other financial disruptions over the last 20 years have revealed the severe magnitude of distress that shocks can disperse across a highly interconnected financial system.

While huge strides have been made in understanding the importance of financial interconnections, large data gaps still persist in parts of the financial system. Data gaps allow activity in the financial system to occur in the shadows. A lack of visibility into such activity can inhibit effective risk management by financial market participants.

For these reasons and in alignment with our mission, identifying and filling data gaps is always a core priority for the OFR. In support of the Financial Stability Oversight Council (FSOC) and its member agencies, our work at the OFR supports a transparent, competitive, and stable financial system. We work daily to shed light into corners of our financial system where gaps in both data and research exist in order to help inform the decision-making of regulators and policymakers.

Two days ago, the OFR published our 2024 Annual Report to Congress, which is available for the public to read on our website www.financialresearch.gov. In our Annual Report, we highlighted three critical data gaps. I will touch upon them briefly and encourage you to read the in-depth analysis in our Annual Report.

One data gap exists for certain uninsured deposits. Currently, data on uninsured deposits at financial institutions insured by the FDIC are collected for less than one-quarter of such institutions and do not capture important characteristics. This makes anticipating and reacting to bank runs difficult.

A second data gap exists for private credit, which is a rapidly growing portion of nonbank lending. A substantial fraction of the private credit extended appears to be high-risk. The performance of this debt is difficult to assess because limited data are collected from these nonbank lenders.

A third data gap exists for dealer margining practices. Margin debt is a form of secured lending. It has features that can cause large movements in asset prices and can transmit stress across markets. Visibility into dealer margining practices remains limited, but that will soon change.

Next month, the OFR will start receiving data on non-centrally cleared bilateral repo (NCCBR) transactions. This will mark the culmination of a multi-year effort that resulted in the OFR publishing a Final Rule earlier this year to collect that data. The new data will include information about dealer margining practices to help close that important data gap. The data will also provide insight into how financial institutions effectively manage liquidity needs and requirements in the critical repo market.

I am proud to say that the OFR not only closes important data gaps but also offers analytic and monitoring tools for the public and policymakers. Most notably, this summer the OFR launched its Hedge Fund Monitor, a new interactive data visualization tool. The monitor makes aggregated data on hedge fund activities accessible on our website for public use. The data are available to download through an API. The Hedge Fund Monitor complements the existing suite of monitoring tools, which cover short-term funding markets, money market funds, and bank systemic risks.

In recent years, the OFR also has devoted significant resources to enabling data sharing and collaboration, as well as collecting data. In 2023, we successfully launched the Joint Analysis Data Environment (or JADE). JADE is a collaborative, cloud-based platform designed for FSOC members to analyze risks to financial stability. JADE offers scalable, high-performance computing, with analytical software and support for many programming languages. JADE is of significant importance to the financial regulatory community and can bring significant efficiencies by facilitating collaboration.

Let me close with some final thoughts. The OFR is laser-focused on achieving our financial stability mission through successful strategy execution. Our strategy includes:

• Closing financial data gaps.
• Providing FSOC and its members, as well as OFR researchers, secure access to financial data, advanced data analytics and services, and collaboration platforms.
• Publishing timely, accessible financial stability research and financial risk monitors.
• Remaining nimble to exploit technological innovations, identify emerging risks, and meet stakeholder needs as they arise.

Along with our highly talented and dedicated OFR staff, I am committed and excited to continue our important financial stability work in partnership with FSOC, its members, and other stakeholders.

And I am grateful for the financial stability work that each of you contributes to as well.

Thank you very much. I hope you enjoy today’s discussions.