OFR_2016_Financial-Stability-Report

of magnitude. Unlike residential mortgages, the risks cannot be captured by
a small number of uniform factors.
Loan-level data are available for commercial mortgages that are securitized
into mortgage-backed securities with public offerings. Those data
are collected and sold by private entities, and regulators may buy the data.
Bank regulators also collect loan-level data on many multifamily loans and
on loans from banks that take part in Federal Reserve stress testing. Insurers
also report loan-level information to their regulator.
But loan-level data are not collected about other commercial mortgages,
including whole loans held by real estate investment trusts and smaller
banks not subject to stress testing. In recent years, the share of loans subject
to loan-level collection has decreased as securitization markets have lost
market share and credit risk has shifted to smaller banks.
Data Management Presents Evolving Challenges
Data management practices at individual firms can contribute to risks across
the financial system. During the financial crisis, complex financial firms
were unable to assess risks due to poor data quality and data management
systems (see BIS, 2015). Data management practices may threaten finanscial
stability when new interconnections create new and complex tasks of
integrating data from many sources. Existing processes may also be overwhelmed
by “big data.”
Interconnections and Interactions
Data management problems can hinder regulators’ efforts to understand
interconnections and interactions among companies.
Collecting Data for Living Wills. The Dodd-Frank Act mandates a new
framework for planning for unwinding a failing financial institution. The
Act requires systemically important banks, insurers, and other designated
firms to submit a living will for orderly resolution in the event of failure.
Living wills introduce a novel set of data-related challenges. For example,
the law requires systemically important institutions to maintain detailed
records of qualified financial contracts (QFCs). QFCs generally include
derivatives, repos, and securities lending agreement. Under the Treasury’s
final rule, firms have to be capable of providing their QFC records within
24 hours of request (see Treasury, 2016).
The wind down of a systemically important institution would require
regulators to create unprecedented processes to take in and analyze large
volumes of diverse data. Failures of large institutions are rare, but extricating
a large company from the financial system must happen quickly — within a
trading day or over a weekend. Fast, accurate identification of counterparties
Data management
practices may threaten
financial stability when
new interconnections
create new and complex
tasks of integrating data
from many sources.
Existing processes may
also be overwhelmed by
“big data.”
Key Threats to Financial Stability 87