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A few weeks back, we discussed how the Trump administration’s significant and troubling legislation could cut funding to the Treasury’s Office of Financial Research, jeopardizing the calculation of the Secured Overnight Financing Rate (SOFR). Interestingly, the chaotic nature of U.S. legislation might end up protecting it!
It’s important to emphasize that even by today’s standards in U.S. economic policy, starving the OFR and shrinking the Financial Stability Oversight Committee (FSOC) would be a monumental error.
A bipartisan group of financial specialists and former leaders, including Ben Bernanke, Janet Yellen, and Sheila Bair, made this clear in a letter to Congress a couple of weeks after our initial post:
Eliminating the OFR and weakening FSOC won’t lower the federal budget deficit; instead, it would impair the nation’s ability to sustain a stable financial system. The costs associated with fiscal measures needed to recover from a financial crisis would be significantly greater.
. . . The data gathered by the OFR regarding the crucial market for repurchase agreements (repos) provide essential insights into Treasury market stability for FSOC members. If the OFR loses funding, these data may no longer be reliably accessible. This could severely impact SOFR’s function as a vital benchmark in multi-trillion-dollar financial markets. Worryingly, any new data gaps that emerge might remain unaddressed, leaving FSOC and the financial sector with perilous blind spots.
Last week, the Senate parliamentarian — who advises on procedural matters — came to the rescue.
The pivotal issue relates to the Byrd Rule, which has limited what can be included in budget reconciliation bills since the 1980s. While straightforward fiscal items can pass with a simple majority, if “extraneous” matters are added, the bill requires 60 votes in the Senate to move forward.
Importantly, Senate parliamentarian Elizabeth MacDonough ruled that efforts to defund the OFR, Consumer Financial Protection Bureau (CFPB), and Public Company Accounting Oversight Board (PCAOB), among others, fall under the Byrd Rule.
From what we understand, this means these items must either be removed from the final bill before the July 4 deadline set by the Trump administration, or the bill will need 60 affirmative votes to pass. This will be a challenging task, given the current issues with the bill.
MainFT noted that the PCAOB was saved due to the Byrd Rule, and we had overlooked that this also protects the OFR. Given our focus on this topic, we felt it was important to share this update.
It’s quite concerning that only niche procedural arguments can safeguard the OFR (and the CFPB and PCAOB), but for supporters of transparent data and financial oversight, we must celebrate every small victory we can — even if they stem from technicalities. Thanks, Byrd!
For more information:
— The ‘One Big Beautiful Bill Act’ proposes to eliminate the Office of Financial Research, potentially endangering Treasury market stability (Notes On The Crisis)
