Evaluating the government as a source of systemic risk

In the wake of the financial crisis, the Dodd-Frank Act established the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) to address the concern that policymakers lacked sufficient data to anticipate emerging threats to financial stability. Although most discussions about systemic risk have focused on the private sector, the U.S. federal government is the world’s largest and most interconnected financial institution, and through its activities — as a banker, rule-maker and regulator — represents a major source of systemic risk. This paper makes the case that the government is a significant source of systemic risk and offers suggestions for how the OFR could help to illuminate and mitigate such risks.