Last week, Mainft bouncing the potentially wild meaning of the ambiguous but explosive provisions buried deep within the Trump administration’s budget bill.
Section 899 of the bill passed in the House last week allows the United States to impose additional taxes on businesses and investors from countries deemed to have “discriminatory” tax policies. As George Saravelos of Deutsche Bank said, it represents a potential “weaponization of the US capital market” given the trillions that foreign investors have in the United States.
Well, here’s another hidden hamdinger. This can be found almost halfway through CA 160k’s “one big beautiful bill act.”
50,005 seconds. Financial Research Fund.
Section 155 of the Financial Stability Act of 2010 (12 USC 5345) is amended by adding the following at the end:
(e) Limitations on the Evaluation and Financial Research Fund.
(1) Limitations on ratings. – If ratings are obtained, ratings may not be collected based on subsection (d)
(a) Financial Research Funds that exceed the average annual budget. or
(b) Total valuations collected in one fiscal year exceeding the average annual budget amount.
(2) Transfer of extra funds. – Any amounts of the Financial Research Fund exceeding the average annual budget will be deposited in the Ministry of Finance’s General Fund.
(3) The average annual budget amount defined. -In this subsection, the term “average annual budget amount” means the annual average of the Council’s expenses in carrying out the Board’s duties and liability, using the amounts paid by the Office, using the amounts obtained through the assessment under subsection (D).
This is it. . . If you read this, it is potentially very problematic.
While the jargon of US legal politics is difficult to analyse, Alpha Bill’s understanding is that this could actually kill the US Treasury Department’s Bureau of Financial Research, an agency that has been set up since 2008 as a kind of early warning system for the financial crisis.
The Financial Research Fund, referenced in Section 50005, financially refers to both the operation of the Financial Stability Monitoring Council (a comprehensive institution chaired by the US Secretary of the Treasury), including all major US financial regulators, and the OFRs supporting it. The FRF earns money from small annual taxation at large US banks.
The bill appears to have a cap on these claims, equal to the average annual budget for the Council. This probably means FSOC in this context. However, FSOC’s budget is small compared to OFR, consuming most of the funds raised by Financial Research Fund’s bank fees.
By appearing to limit these fees to only the FSOC’s average annual budget, the budget bill effectively kills OFR by reimbursing it without the hassle of having to actually pass legislation to actually make it official (Trump administration’s favorite playbook)
Again, while certainly difficult considering the troubling words of the bill, the interpretation of the language appears to be consistent with the interpretation of the Congressional Budget Office and the Congressional Research Service. As the latter pointed out, with the following alphabill emphasis:
. . . Section 50005 limits both these annual valuations and FRF balances to the average FSOC budget for the past three years, at $16 million from 2023 to 2025 (assuming that FSOC is eligible for transfers to the Federal Deposit Insurance Corporation). Any fund balances exceeding the limit will be transferred to the Ministry of Finance’s General Fund. This is comparable to the FSOC and OFR total estimated obligation of $136 million, an OFR valuation of $124 million in 2025, and the FRF unobligated balance of $74 million as of April 2025. The CBO estimates that this section will reduce the deficit by $292 million over the decade.
The overall point of the original Dodd-Frank Act of 2010 was to put together a patchwork of American stupidly complicated regulators and prevent the kind of cataclysmic failure that contributed to the 2008 financial crisis. However, to do so, data, research and analysis were required. Therefore, OFR was established within the US Treasury Department.
It can be argued that the FSOC can continue to play the same comprehensive and comprehensive role without OFR to support it. Some of that research necessarily overlaps work done elsewhere in the federal government or by things like the IMF. Additionally, $16 million is sufficient to raise funds for Rump-FSOC/OFR staff. Alternatively, the Treasury could seek additional funds through the usual budgeting measures to maintain the OFR.
However, if nothing has been changed, you will need to throw away all of the information collection, cleaning, dissemination and analysis that OFR does. Its data, technology and research centers produce good things like hedge fund monitors and money market fund monitors (Alpha Bill used the former for this story, while the latter for future stories). OFR played a pivotal role in keeping the Legal Entity Identifier Database off the ground.
Most importantly, OFR plays a key role in collecting much of the data that supports secured overnight funding rates.
Unlike LIBOR, SOFR is not a useful vibe or some trader P&L, but is an interest rate benchmark derived from actual financial transactions. Specifically, it is based on the accommodation US repo market where the US Treasury Department serves as collateral for short-term loans between banks and other financial institutions.
The New York Federal Reserve is the SOFR manager, but the important raw data comes from bond liquidation companies New York Mellon Bank and OFR. Oops.
In other words, after years of effort by regulators, central bankers and Treasury officials around the world, after separating the global financial system from Rebole’s dependency, the Trump administration is now hampering major successors, which is beginning to gain traction.
A statement to FT Alphaville regarding the impact of the budget bill on OFR and the potential knock-on impact on SOFR, a Treasury spokesman said:
Even if OFR becomes a zombie agency, it is true that its SOFR data collection/warehouse role could, in theory, be simply taken up by someone else by the New York Federal Reserve itself. However, the data in this report is very troublesome and probably involves countless legal ownership issues. Therefore, moving SOFR data collection from one institution to another is almost certainly not an easy process.
Is there an OFR refund and potential damage to the SOFR intended, or is it just Snafu? It’s difficult to say. However, OFR’s motto is “A transparent, accountable and resilient financial system.” These seem undesirable in the US in 2025.
