WASHINGTON — A provision in the “Big Beautiful Bill” that would eliminate the Office of Financial Research and hobble the Financial Stability Oversight Council could destabilize the U.S. economy and the banking sector, a group of more than 50 bipartisan financial and banking experts, including several former Federal Reserve chairs, warned.
Republicans are moving to eliminate the Office of Financial Research, which tracks trillions of dollars flowing through financial markets, a move that the experts, including former Fed Chair and Treasury Secretary Janet Yellen, former Fed Chair Ben Bernanke and former Federal Deposit Insurance Corp. Chair Sheila Bair, say would leave regulators flying blind during the next financial crisis.
The bill would not just eliminate the Office of Financial Research but also
“The proposed legislation does more than end the OFR. It would also cripple FSOC, because FSOC relies heavily on the OFR for data and analysis and because the provision permanently caps FSOC’s budget at what will inevitably be much lower spending levels,” the signers said in a letter. “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.”
Critically, the Office of Financial Research provides data that helps FSOC calculate a key interest rate called SOFR, which influences the cost of mortgages, business loans and countless other financial products. “If the OFR were defunded, the legal authority to collect information to calculate SOFR could be called into question,” the experts warn in the letter.
The Office of Financial Research also tracks virtually all of the repo market on a daily basis, without which FSOC and the bank regulators that make up FSOC would not know the extent to which the repo market involves different types of collateral and the counterparties involved, information which in the past has helped form policy tools such as standing repo facilities.
“If the OFR were eliminated, it is unclear whether the authority for the OFR’s repo collections could transfer to the Treasury, as proposed, without legislation independent of budgetary considerations,” the experts said. “The statutory authority for the OFR to collect data, and under which its repo rules were issued, only gives the authority to the OFR, not to any other office within the Treasury or any other federal agency.”
Republicans in Congress have argued against
The experts in the letter to congressional leadership argued that the amount spent on the Office of Financial Research would pale in comparison to the amount needed to recover from a financial crisis.
“History shows that financial crises have high socio-economic costs and that the economic recovery from such crises tends to be protracted,” the experts said. “Defunding or significantly downsizing the OFR and its financial data and analytics would be a mistake, particularly so given today’s elevated macro-financial uncertainties.”