Potential Elimination of OFR and inadvertent disruption of SOFR by Trump's proposed legislation?
Let's dive into the sneaky nooks of the recent budget bill, shall we? Yes, ol' Macronomics is back at it again, slipping in some skeletons akin to a burial ground for financial regulatory bodies.
This time, they've got their sights set on the Office of Financial Research (OFR) within the US Treasury. Hidden somewhere within the 160k-word "One Big Ugly Bill Act" lies Section 50005.
Here's a run-down, but be warned: this jargon can be as intricate as a Damien Hirst sculpture with a galactic load of serotonin reuptake inhibitors.
SEC. 50005. FINANCIAL RESEARCH FUND.
This section amends the Financial Stability Act of 2010. It provides limitations on the assessments for the Financial Research Fund, which supports both the Financial Stability Oversight Council (FSOC) and the OFR. The problem? The cap placed on these charges would de facto defund the OFR by restricting them to only cover FSOC's average annual budget—and the OFR's budget dwarfs that of FSOC.
The Financial Research Fund, in short, would become a financial ticking time bomb, potentially demolishing the OFR's once thriving operations with a stifling financial chokehold.
Now, let's set the stage. The original Dodd-Frank Act of 2010 was put in place to harmonize America's arbitrarily complex web of regulators and prevent the kind of financial disasters that led to the 2008 crisis. To do that, data, research, and analysis were essential, which is why the OFR was established within the US Treasury.
The OFR's dear little sister, FSOC, resides within this same web. While FSOC's budget is minuscule, the OFR is the cherry on top, consuming the majority of the Financial Research Fund's profits.
It seems the budget bill might do away with the OFR by placing an arbitrary spending ceiling on its funding. In other words, the Trump administration could be snuffing out the OFR without so much as a formal vote. Cunning ain't it?
Now, the Congressional Budget Office and the Congressional Research Service seem to share our interpretation of this section. As the latter noted, this would significantly reduce annual assessments and OFR (and potentially FSOC) spending, and the budget deficit by a whopping $292 million over ten years.
Don't let those fancy government acronyms fool ya. This section's a bombshell, ready to explode the OFR like a keg at a frat party. As chaotic as a table saw in a grenade factory. Just terrible.
The OFR's cost doled out to big US banks, around $83 million annually, supports crucial initiatives like the Hedge Fund Monitor, Money Market Fund Monitor, and the Legal Entity Identifier database. The OFR's role in collecting data for the Secured Overnight Financing Rate (SOFR), Libor's successor, is particularly significant.
To fully grasp the gravity of these changes, let's break it down:
- SOFR's Administrator: The New York Federal Reserve.
- SOFR's Crucial Data Source: The OFR. Whoops.
If the OFR's operations get crushed under the weight of the budget bill, where the heck will they find a reliable source for SOFR data?
It's like Elon Musk trying to launch a rocket without O2. Can't exactly happen, can it?
So, there's that. The OFR, like the proverbial canary in the coal mine, could be on track to becoming a fossilized footnote in the annals of financial policy. But hey, at least the Treasury regards ensuring proper financial market functions as one of its top priorities, right?
If you care about keeping toes from being stubbed by financial landmines, it's worth keeping tabs on this one. Otherwise, we're heading down a treacherous path that traces back to 2008, and I don't think anyone wants a repeat of THAT mess.
- The recent budget bill, dubbed "One Big Ugly Bill Act," houses Section 50005, which poses a threat to the Office of Financial Research (OFR) within the US Treasury.
- This section amends the Financial Stability Act of 2010, and it provides limitations on the assessments for the Financial Research Fund, which supports both the Financial Stability Oversight Council (FSOC) and the OFR.
- The problem lies in the cap placed on these charges, which would effectively defund the OFR by restricting them to only cover FSOC's average annual budget—the OFR's budget dwarfs that of FSOC.
- If the OFR's operations get crippled under the weight of the budget bill, it would create a significant issue for the New York Federal Reserve, as the OFR serves as a crucial data source for the Secured Overnight Financing Rate (SOFR), Libor's successor.
