U.S. Treasury research unit director defends study on asset managers

WASHINGTON Wed Jan 29, 2014 6:19pm EST

WASHINGTON Jan 29 (Reuters) - The head of a U.S. Treasury Department research unit on Wednesday told lawmakers that a controversial September report was meant to "shine a spotlight" on potential risks of asset managers, not prompt tougher regulation of specific firms.

Richard Berner, director of the Office of Financial Research, sought to answer some lawmakers' critiques of the report, which they said misinterpreted aspects of asset managers' activities. Some industry groups said the office did not do enough to incorporate their views in the report.

On Wednesday, Berner said his office did consider feedback from the asset management industry and from other regulators while it worked on the report.

"There is not a single asset manager, not a single trade group or representative of asset managers who asked to have a meeting with us that we turned down," Berner said during his first appearance before a U.S. Senate Banking subcommittee to discuss his agency.

The office was created by the 2010 Dodd-Frank law and charged with plugging holes in financial data. Lawmakers believed these research gaps allowed problems that contributed to the 2007-2009 financial crisis to go unnoticed.

The research office, or OFR, produced the asset management report at the request of a group of regulators called the Financial Stability Oversight Council. That group designates nonbank firms for tougher oversight if it thinks their failure could threaten markets.

The OFR's report found the activities of such as BlackRock and Fidelity could be risky if, for example, they all crowded into the same assets at once. It did not discuss risks posed by specific firms.

Berner said the report considered potential risks across the industry and was not meant to be used in designating individual asset managers for stricter regulation.

But the report has come under attack by the industry, and even privately among officials at the Securities and Exchange Commission, which regulates asset managers.

Since its release, a growing number of lawmakers have also spoken out against the report, saying the OFR misrepresented aspects of the industry and relied on flawed or incomplete data.

A House of Representatives financial services subcommittee also plans to hold a hearing on the topic next week.

Several lawmakers have written to Berner or to Treasury Secretary Jack Lew to criticize the report.

Senator David Vitter, a Louisiana Republican, on Wednesday said the office did not include enough input from the industry.

"I think if you talk to them and ask them, they will say, 'Yeah, we had a meeting and we got no reaction from anyone about what the thinking was or where this might be headed,'" Vitter said.

Berner said the OFR's exchanges with the industry were "vigorous" and that the office continued to seek outside groups' feedback on its work.

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