Think-Tank Scholar Alex Pollock Takes Senior Role at Treasury's OFR

Alex J. Pollock has been named principal deputy director of the Office of Financial Research, a U.S. Treasury Department unit that principally supports the multi-agency Financial Stability Oversight Council in monitoring for potential threats to the financial system.

Taking a new position, Pollock is a high-profile addition at the OFR, which was created in tandem with the FSOC by the Dodd-Frank Act of 2010, and which has seen its employee count decline. Members of Congress have raised questions about that, and Dino Falaschetti, a former House Financial Services Committee chief economist who was confirmed in June for a six-year term as OFR director, testified at a Financial Services subcommittee hearing in September that he was committed to “providing for a safe, collegial, and fulfilling workplace.” He said he was meeting with every OFR staff member as part of a plan to promote “greater communication, collaboration, and transparency throughout our office and establish a rewarding sense of fulfillment that comes from good work done well.”

A remaining senior vacancy, according to the website's leadership page, is chief counsel, who was Matthew Reed from 2012 through September 2019. Led by Reed and OFR's first director, Richard Berner, the office was an active proponent of the legal entity identifier (LEI) standard for data reporting and analysis. Falaschetti communicated continuity in this regard in November 4 remarks to a Global Legal Entity Identifier Foundation forum.

From Chicago to Washington

Long active and respected as a financial policy scholar and commentator, Pollock was most recently resident distinguished senior fellow at Washington, D.C.'s R Street Institute. He joined R Street in January 2016 after about 12 years as resident fellow of the American Enterprise Institute (AEI). He continued to be a frequent participant in AEI public programs, including Can the Federal Reserve manage the next economic crisis? on November 14.

From 1991 to 2004, he was president and CEO of the Federal Home Loan Bank of Chicago, where he hired as chief risk officer Matthew Feldman, who later rose to CEO. With a bachelor's degree in philosophy from Williams College, a master's in philosophy from the University of Chicago, and a master's of public administration in international affairs from Princeton University, Pollock is the author of Boom and Bust (2011) and Finance and Philosophy: Why We're Always Surprised (2018).

In the latter book, Pollock suggested creation of an official body, “the systemic risk advisor,” not unlike the OFR, but independent of “government and central bank power structures” so as to maximize intellectual freedom and willingness to speak out. Although conceding that mistakes will always be made in predicting the future, he wrote that an advisory group of “philosophers, distinctly not imagining themselves as economic philosopher-kings, is worth a try.”

Cryptocurrency Critique

Pollock has been weighing in on, among other topics, cryptocurrencies. During a February 2018 AEI panel discussion, he said that Bitcoin could potentially follow in the historical line of “private currencies” like the bank notes that proliferated in the U.S. in the 19th century. If Bitcoin ever became a threat to the monetary system, he said, “it's a good bet” that government would exercise its sovereign authority and take it over.

In a recent commentary for The Hill, Pollock considered the implications of a central bank digital currency that could result in a significant concentration of deposits in the Federal Reserve System, in turn placing the Fed in a position of allocating credit.

Credit decisions would likely become politicized, he warned, and the government “would know almost everything about our financial lives. Digital currency would then have traveled from libertarian choice to Big Brother. If not strictly limited and controlled, central bank digital currency could turn out to be one of the worst financial ideas of the 21st century.”

Leaving CME's Board

Testimonials were issued by R Street president Eli Lehrer and by Terry Duffy, chairman and CEO of CME Group, from whose board Pollock stepped down on November 15 after more than 15 years.

“Alex Pollock is one of the most well-respected and thoughtful scholars at R Street and in the financial policy world,” Lehrer said. “His expertise and leadership will be missed, but we are always happy to see our experts move into leading public service roles. We are deeply grateful to Alex for his time at R Street and wish him well in his important new role at the U.S. Treasury.”

Duffy said Pollock “has made many contributions and was instrumental in helping our institution manage through significant market events and with its ongoing organizational development.” He served as chairman of the board's compensation and nominating committees and was a member of the executive, finance, governance, clearing house oversight, and market regulation oversight committees. He was lead director from August 2012 to August 2014.

“It has been a privilege to serve on the board of CME Group,” Pollock said in a statement. “I have greatly enjoyed the opportunity to work closely with its outstanding chairman and CEO, Terry Duffy, my colleagues on the board, and the talented management team as the company has transformed into the global industry leader it is today. At the U.S. Treasury, I look forward to helping the nation cope with the evolution of systemic risk and with inevitable financial cycles.”

An Organizational “Reshaping”

The House Financial Services Committee majority staff memorandum for a June 4, 2019 hearing on emerging threats to stability raised the issue of “a substantial weakening of the post-crisis reforms,” and pointed to cutbacks at the OFR:

“Furthermore, even though former President Obama's fiscal year 2017 budget estimated the OFR would expend about $104 million, in part to employ a staff of 255 full-time equivalent (FTE) employees, President Trump's fiscal year 2020 budget estimates the OFR will expend $75 million, in part to employ a staff of 145 FTEs. This represents a staff budget reduction of more than 43%.”

In November 2018, Ken Phelan, then OFR's acting director as well as the U.S. Treasury's chief risk officer, explained in the OFR annual report that the office “carried out a fundamental reexamination of its mission, culture, and structure - and sharpened its focus on primarily supporting the Financial Stability Oversight Council and its member organizations . . . As part of our reexamination, we determined that we should undergo a 'reshaping' project, retaining mission-critical functions, while paring support functions and the management structure. These efforts position the OFR as a data-driven organization with analytical capabilities serving the needs of its stakeholders.”

Senior managers and associate directors declined by 36%, said the body of the report, as a number of roles were abolished or consolidated. “Support functions were consolidated under the chief operating officer, and several separate business and procurement offices were abolished,” it said. “The offices of the chief of staff; external affairs; strategy, governance, and performance; and project management were eliminated. Administrative support positions and human resources functions were also consolidated under the chief operating officer.”

In his September testimony, OFR director Falaschetti quoted former Reserve Bank of India governor Raghuram Rajan emphasizing “opportunities for data analysis and monitors to increase transparency for inter-institution exposures and concentrations of risk in the financial system.

“Our office was established to deliver on exactly those types of data and research services,” Falaschetti continued, “so that regulators and the public can better gauge potential risks to financial stability.”

Falaschetti said it is a top priority to respond to the stated needs of staff, build a culture of accountability, and recruit, hire and retain “the most talented and motivated people to further OFR's incredibly important mission.”