Senate Banking Committee members from both parties said on Wednesday that they had agreed to include in their regulatory overhaul bill a new Office of Research and Analysis that would provide early warnings of possible systemic collapses.
The proposed agency, which has sometimes been referred to as the National Institute of Finance, is intended to give federal regulators daily updates on the stability of individual firms as well as that of their trading partners, including hedge funds.
By standardizing financial instruments and reporting mechanisms, the agency would give regulators a broader view of the health of participants in the financial markets and the potential for problems to spread. The idea’s supporters say that kind of information was lacking in recent years as the housing bubble burst and troubles spread from firm to firm.
“One of the problems we observed in the recent crisis is that nobody knew who had what,” said Senator Jack Reed, a Rhode Island Democrat who last month introduced a stand-alone bill to establish a National Institute of Finance. “The result was a cascading effect of uncertainty and doubt.”
The new agency, which was also endorsed Wednesday by Senator Bob Corker, Republican of Tennessee, would have no policy responsibilities but would instead collect and analyze data, building models to assess relative risks and predict how one firm’s problems might affect others.
As proposed, the new agency would be housed in the Treasury Department with a director, appointed by the president and confirmed by the Senate, who would be an ex-officio member of a systemic risk council that would be created by the bill. The agency would draw its budget from assessments on the largest financial firms, according to people who are close to the negotiations but who were not authorized to speak publicly.
The agency would gather data from the largest firms and from a broad set of market participants, including all United States-based financial institutions, which would be required to report all their financial transactions, regardless of whether the counterparty was based here or abroad. The agency would take steps to safeguard proprietary trading information, while also shining a light onto the so-called shadow banking system of mortgage brokers, subprime lenders and unregulated hedge funds that contributed to the financial crisis.
The financial reform bill approved last year by the House would create a systemic risk council that would collect similar data without establishing an independent agency, a difference that will have to be resolved before a bill is sent to the president.
A group called the Committee to Establish the National Institute of Finance — made up of current and former financial executives, statisticians and economists, including six Nobel laureates in economics — has been lobbying for such an agency for much of the last year.
Allan I. Mendelowitz, a former director of the Federal Housing Finance Board who was a founder of the group, said in an interview that regulators were unable to assess expanding risk in the recent crisis in part because they relied on independent contractors, like the credit rating agencies, for data.
If a security was rated triple-A by the ratings agencies, for example, as were many mortgage-backed securities, regulators wrongly assumed that it posed little systemic risk, Mr. Mendelowitz said.
The agency would require a vast array of computing capacity, supporters said, and it would probably take a couple of years to establish data standards and build analytical models. But it could immediately begin to assess counterparty risk based on existing data.
Senate negotiators also tentatively agreed to establish a $50 billion fund to finance the dissolution of failing firms that could not be rescued through bankruptcy proceedings. The fund is intended to support companies that are forced to wind down their operations, without having to resort to taxpayer bailouts.
People who have been briefed on the negotiations said two proposals were under consideration. One would require financial companies to pay into a fund upfront and the other would have them buy interest-bearing shares in a trust that would allow the firms to keep the assets on their balance sheet.
Also on Wednesday, five Senate Democrats, including two members of the Senate Banking Committee, Jeff Merkley of Oregon and Sherrod Brown of Ohio, introduced a bill that would ban deposit-taking banks from owning or investing in hedge funds or private equity funds and from making market bets for the company’s own benefit.
President Obama put forward the idea in January and called it the Volcker Rule, in recognition of its champion, Paul A. Volcker, the former Federal Reserve chairman.
The bill has been endorsed by John S. Reed, a former Citigroup chairman; the economist Joseph E. Stiglitz; and Robert B. Reich, a former labor secretary, among others. But it faces significant resistance in Congress and is unlikely to be part of the revised bill that is expected to be introduced this month by Senator Christopher J. Dodd, chairman of the Banking Committee.