Its powers are enormous, and so will the temptation be to abuse them.
It's hard to believe, but the more we learn about Dodd-Frank, the worse it gets. Have you heard of the Office of Financial Research that the bill created? Don't be fooled by that innocuous-sounding name: the OFR is an all-powerful, unaccountable bureaucracy with the authority to snoop into virtually every corner of your financial life, and there's nothing you can do about it. It is a travesty.
The nominal purpose of the OFR is to provide the newly created Financial Stability Oversight Council (FSOC) the data it needs to identify potential problems in the financial system, in order to (this is the plan anyway) prevent the next crisis. As a practical matter, that means that the OFR will have unfettered authority to demand from financial institutions whatever data-trading positions, counterparty information, even proprietary data-that it wants. The idea is that if that a single agency has access to enough data from across the entire financial system, it can identify developing risks early on, much the same way meteorologists can identify budding weather patterns, and the FSOC can act to prevent them from becoming full-blown emergencies.
There are a couple of troubling problems with this. To begin with, it won't work. The U.S. financial system is enormously complex. It's doubtful any single bureaucracy, regardless how collectively brainy, would be able to drill down into the mass of data to be accumulated and make enough sense out of it to be able to identify potential problems before they occur. As far as that goes, prior to the last crisis, it was no secret that home prices were in a bubble. Regulators knew everything they needed to know, yet they still couldn't bring themselves to tell lenders to lay off the subprime lending. (Actually, the government's policy was to encourage more of it.) How would access to even more data the next time around be any help?
Even worse, though, the OFR (which is housed in the Treasury Department, but isn't under the department's control) will have sweeping powers that are stunning even by the standards of overreaching government agencies. To begin with, it will be self-funded, via levies it will lay on the banks. The OFR is not subject to annual appropriation of Congress, which, as a practical matter, means it's not subject to meaningful Congressional oversight. There's not even a statutory limit on how much the agency can tax: the OFR will just decide what it needs, and take it.
Nor will the OFR be run by a multi-person board, as most other regulators are, but instead will be controlled by a single individual appointed to a six-year term by the president and approved by the Senate. Then once he's in, he can't be fired. By anybody. For any reason. Yet this individual will have virtually unlimited subpoena power. The OFR will be able to ask just about any institution for anything it wants. Proprietary trading positions. Consumer ATM and credit card transactions. Auto loan data. Anything.
And since the agency is effectively under no oversight, it can do just about anything it wants with the data it collects. Indeed, Dodd-Frank specifically authorizes the agency to disseminate the information it collects to "the general public" and "financial industry participants," among others. The potential for abuse boggles the mind.
This unchecked, unaccountable monstrosity created by Dodd-Frank is an affront to representative government, and an embarrassment to the legislators who voted for it. Like the Consumer Financial Protection Bureau (also self-funded and run by a single individual) the agency should be abolished - not because they'll end up being counterproductive (though they will be), but because any country that considers itself a democracy should refuse to put up with its existence. The OFR is a terrible idea. We should be rid of it before it creates a problem.