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A few weeks ago, we wrote about how the Trump administration’s big ugly bill would defund the Treasury’s Office of Financial Research and potentially sabotage the calculation of SOFR. However, it turns out that the tragicomic messiness of US legislation might end up saving it!
It bears repeating that even by the standards of modern-day American economic policymaking, starving the OFR to death and reducing the associated Financial Stability Oversight Committee to a shrivelled husk would be an epic mistake.
As a bipartisan group of financial experts and former policymakers like Ben Bernanke, Janet Yellen and Sheila Bair subsequently put it in an open letter to US Congress a coup-le of weeks after Alphaville’s post:
Eliminating the OFR and crippling FSOC would not reduce the federal budget deficit but would undermine America’s capacity to maintain a stable financial system. The budgetary costs of fiscal and other government stimulus to recover from a financial crisis would be much higher.
. . . The data from the systemically important market for repurchase agreements (repos) that the OFR collects provide FSOC members critical visibility into Treasury market resilience. If the OFR were defunded, these data may not be reliably available. The function of the Secured Overnight Financing Rate (SOFR) as the key benchmark rate in multi-trillion-dollar financial markets could be seriously degraded. Importantly, new data gaps that arise may go unfilled, leaving FSOC and the financial sector with dangerous blind spots.
However, the Senate parliamentarian — the legislative body’s official adviser on procedural grounds — last week rode to the rescue.
The crucial issue is something called the Byrd Rule. This has since the 1980s limited what can be shoehorned into a budget reconciliation bill. Simple fiscal measures only need to pass by a simple majority, but if “extraneous” issues are included then the bill needs 60 Senate votes to pass.
Crucially, the Senate parliamentarian — Elizabeth MacDonough — ruled that measures to defund the OFR, the Consumer Financial Protection Bureau and the Public Company Accounting Oversight Board (among other things) were all subject to the Byrd Rule.
As far as Alphaville understands, this means they either need to be struck from the final bill before the July 4 deadline indicated by the Trump administration, or it will need 60 votes to pass. That will be a tall order, given the existing bill’s troubles.
MainFT reported that the PCAOB had been saved by the Byrd issue, but we’d missed the fact that this also protected the OFR. Given Alphaville’s interest in the subject we thought it was still worth a post.
It’s quite damning that niche procedural arguments are required to save the OFR (and the CFPB and PCAOB), but at this point fans of transparent data and financial oversight probably need to take every win we can — even those on purely technical grounds. Thanks, big Byrd.
Further reading:
— The ‘One Big Beautiful Bill Act’ eliminates the Office of Financial Research – threatening the stability of the Treasury market (Notes On The Crisis)
