President Obama had nominated Berner to lead the barely up-and-running Office of Financial Research, which was created under the Dodd-Frank bill in 2010 after the financial crisis exposed regulators’ blind spots when it came to Wall Street.
Berner was an in-house pick: He had already retired from Morgan Stanley and advised the Treasury Department on setting up the office, which supports the work of the new federal Financial Stability Oversight Council — the group that brings together the country’s top financial regulators. And in a bit of a surprise in such a polarized Senate, his confirmation sailed through on a voice vote in January. It was more than five years after he made his famed recession call; the office had a lot of ground to make up.
Late last month, Berner flew to New York, where he was scheduled to speak to several dozen economists and MBA students from New York University’s Stern School of Business. It is the nature of Berner’s new job that the speech was titled “The Office of Financial Research: What is it and what does it do?”
Berner is 66 but looks at least a decade younger, with the carriage of a former competitive swimmer. He was a standout undergraduate at Harvard and a standout economics doctoral student at the University of Pennsylvania, and before he hopped to Wall Street, he spent seven years as a researcher for the Federal Reserve.
In New York, he wore a dark banker’s suit, a red tie and horn-rimmed glasses. He spoke in a low, serious tone, scrolling through PowerPoint slides on a large projector screen beside him. He looked like a business school professor, or maybe that professor’s accountant.
It was an accountant’s warning he brought to the crowd.
“Gaps in our knowledge, and in data,” Berner said, as the speech began, “are themselves threats to financial stability.” In other words, what we don’t know can cripple.
The Great Recession has sparked a data race of sorts among economists who study the financial system, one that Berner is working hard to escalate. Central banks have begun to administer “stress tests” to simulate how large financial institutions would fare if they suffered a shock to their balance sheets, of the type that felled Bear Stearns and Lehman Brothers in 2008. Researchers, including a team at NYU, have developed complex indexes that use public financial data to measure risk in the system, down to the level of individual firms. Economists have begun using network theory — which builds mathematical models of links between members of a system, such as financial traders — to chart the patterns of assets and liabilities that connect banks.