The Trump administration’s budget bill has hidden provisions that could de facto kill the Office of Financial Research (OFR), a key agency responsible for collecting data on financial markets. The OFR, which is set to receive funding from big US banks, would see its annual assessments limited by a cap equal to the average annual budget of the Financial Stability Oversight Council (FSOC). This could lead to significant cuts in OFR spending, potentially crippling its ability to collect crucial data.
The OFR plays a vital role in supporting FSOC and is responsible for financing its operations. However, its budget is tiny compared to the OFR’s own expenses, which cost around $83 million per year. The bill’s provision could effectively defund the OFR without requiring any formal legislation, raising concerns about its intention.
The Office of Financial Research is essential for collecting data that underpins the Secured Overnight Financing Rate (SOFR), a benchmark interest rate used globally. The Trump administration’s potential sabotage of SOFR could have significant consequences, particularly given the recent efforts to replace Libor with SOFR.
While some argue that FSOC can continue its research without the OFR, others believe that $16 million should be enough to finance some staff and maintain the agency’s activities. Alternatively, the Treasury could seek additional funding through normal budgeting channels.
The implications of the bill are unclear, but one thing is certain – the Trump administration’s actions have significant consequences for the stability of US financial markets and the global economy.
Source: https://www.ft.com/content/7962a211-a663-4ec0-99ed-1bde012bb0d8