GOP targets Treasury's risk-watching data hub
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Quick Fix
Republicans in Congress are looking to dismantle a small but powerful government research office that was tasked with detecting risks lurking across the financial system in the wake of the 2008 crisis.
Both chambers' versions of President Donald Trump's 'big beautiful bill' include a provision that would virtually shut down the Treasury Department's Office of Financial Research.
The independent agency, which was created by the Dodd-Frank Act, is charged with collecting data and analyzing potential risks that are emerging throughout the financial system and that cut across the jurisdiction of various regulators. The office, which has subpoena power to seek data from financial companies, regularly publishes information on hedge funds, money market funds, and other corners of financial markets.
But Republicans say the office is redundant and produces unnecessary and duplicative research. They say other regulatory agencies already have all the research firepower they need.
Sens. Ted Cruz (R-Texas) and Mike Braun (R-Ind.) in recent years have repeatedly introduced legislation to eliminate the Office of Financial Research entirely, criticizing it as a 'useless and unaccountable' office within Treasury. And during Trump's first term, Treasury took steps to defang the office.
The latest effort wouldn't outright abolish the research office, whose operating budget for the current fiscal year is about $110 million. But House and Senate Republicans are proposing to drastically cut the annual assessments on big financial institutions that fund the office and the related Financial Stability Oversight Council, an interagency body of top regulators.
The provision, according to Senate aides working on the bill, is designed to limit funding to only what's required to operate FSOC and allow the research office to continue collecting data needed for a key interest rate benchmark that's widely used throughout the global economy. That benchmark, the Secured Overnight Financing Rate, or SOFR, is based on data collected by the research office on the market for Treasury repurchase agreements.
The provision was intentionally designed to make sure the office could continue to engage in the data collection necessary to produce the SOFR, the Senate aides said, adding that they've received technical feedback from Treasury on the issue.
Gutting most of the research office's functions would save about $300 million over 10 years, according to Republicans on the Senate Banking Committee.
But proponents of the office are sounding the alarm over the proposal.
Sen. Jack Reed (D-R.I.), a member of the Banking Committee who championed the creation of the office, said the GOP effort to eliminate it was part of a broader attack on 'independent, authoritative experts.' The goal of the office, he told our Katherine Hapgood, was 'an independent agency that could do analysis of a whole host of issues and anticipate problems, not just react to them.'
Patrick Woodall, managing director for policy at Americans for Financial Reform, said slashing the research office would cut off 'unique modeling and monitoring tools' that are critical to understanding where risk is building up in the financial system, from banks, private credit or other corners of the market.
The rhetoric is about 'tightening our belts and austerity, but the reality is that the impact is not mostly budgetary,' he said. 'The impact is overwhelmingly about our ability to actually monitor the financial system for growing risk that poses potentially very serious impacts on the economy.'
Richard Berner, who was the first director of the Office of Financial Research during the Obama administration, said defunding the agency would be a mistake. 'We learned in the financial crisis, and in other events that have followed the financial crisis, like the banking turmoil of a couple years ago, that we need to look across the financial system and look at it as a system, rather than piecemeal,' he said.
'FSOC was set up to exchange ideas, exchange information, and exchange analysis looking across the system,' Berner said. 'OFR is the lubricant that makes all that work, by providing data that look across the system, and providing analysis that others might not have the horsepower to do or the bandwidth to do.'
IT'S THURSDAY — Drop me a line at mstratford@politico.com. And, as always, send your tips, suggestions and personnel moves to Sam at ssutton@politico.com.
Driving the day
Stablecoin bill advances; Landmark cryptocurrency legislation cleared another Senate procedural hurdle on Wednesday, inching the upper chamber closer to a vote on final passage following weeks of delays and hiccups, Jasper Goodman reports.
The Senate voted 68-30 to move forward on a substitute amendment that includes an array of changes to the original bill Republicans agreed to last month in order to win over the Democratic support necessary to pass the legislation.
The breakdown: Eighteen Democrats joined with Republicans to advance the motion— including Sens. Andy Kim of New Jersey and John Hickenlooper of Colorado, who voted 'no' on the last procedural motion on the bill. Sen. Lisa Blunt Rochester (D-Del.) flipped to a 'no' on Wednesday after supporting the previous procedural motion.
What's next: The vote sets the Senate up to adopt the new base text and then begin voting on the underlying bill later this week. It looks increasingly unlikely that Majority Leader John Thune (R-S.D.) will allow further votes on amendments.
On The Hill
Bessent on Fed chair talk: Treasury Secretary Scott Bessent said Wednesday he would like to continue serving in his current job through the end of Trump's term in office amid a Bloomberg report that he may be in the running to be the next Federal Reserve chair.
'I am happy to do what President Trump wants me to do,' Bessent said during the hearing. 'And I think that we are making great progress at Treasury.'
Meanwhile, Bessent also spent time before the House Ways and Means Committee defending the so-called revenge tax in the GOP megabill. The provision has attracted criticism from Wall Street that it could dampen foreign investment, Bernie Becker reports.
The revenge tax, more formally known as Section 899, would target countries that enacted policies deemed to be discriminatory – like digital services taxes and a mechanism known as the undertaxed profits rule in the global tax agreement, which would allow other countries to tax U.S.-based businesses under some circumstances.
Bessent said it was 'unacceptable' that the global tax deal negotiated by the Biden administration gave other countries new avenues to tax American companies. 'This bill will allow us to prevent our corporate revenues from being drained into foreign treasuries,' he said.
Trump's tax chief pick advances: Billy Long's nomination to be IRS commissioner cleared a Senate procedural hurdle on a party-line vote of 53-46, Bernie Becker reports.
The Senate is slated to take a final vote to confirm Long, a former six-term congressman from Missouri and longtime Trump supporter, today at 12:30 p.m.
At the regulators
A dismissal on the horizon? — Attorneys for Patrick Orlando, the financier who helped bring Trump's social media company public on Wall Street, wrote in a court filing Wednesday, seen by POLITICO, that the SEC staff has proposed a complete dismissal of the agency's case against the former SPAC CEO, Declan Harty reports.
The SEC alleged last year that Orlando falsely represented that his blank-check company had not engaged in talks with potential merger targets before going public in 2021, despite having had 'lengthy conversations' with Trump Media & Technology representatives. Orlando's attorneys and the SEC previously revealed that they had struck 'an agreement in principle' to resolve the matter, but the details were not clear at the time. The deal still hinges on approval by the agency's commissioners.
Hedge fund rules delayed: The SEC voted on Wednesday to punt the compliance deadline for new hedge fund reporting requirements until October, in a last-minute reprieve for Wall Street, Declan Harty reports.
The rule changes, jointly adopted by both the SEC and CFTC last year, were designed to provide financial regulators with a better look at the portfolios, exposure and risk performance of certain private fund advisers who have become key players in the markets.
TRADE CORNER
Inside Trump's China 'deal' – Trump on Wednesday touted a 'deal' with China that's largely the same agreement that the two countries agreed to last month. As POLITICO's Daniel Desrochers, Ari Hawkins, Phelim Kine and Megan Messerly write, initial readouts of the handshake agreement underscore just how far the Trump administration is from achieving its larger goals in the trade negotiations with Beijing.
The International Scene
World Bank ends nuclear ban: The World Bank now has the authority to finance nuclear energy and is moving closer to reentering the space after Ajay Banga, the bank's president, presented a 'balanced by design' energy proposal to the board of directors on Tuesday.
As Katherine Hapgood reports, the World Bank's reentry to financing nuclear energy projects following a more than 60-year absence is part of a new strategy to increase countries' access to electricity 'in ways that are both practical and responsible.' The strategy has won praise from the Trump administration.
Treasury
Student loan staff detailed to Treasury: The Education Department struck agreements to send billions of dollars to the Labor Department to administer a suite of education grants and detail several agency employees to the Treasury Department to help manage collections on federal student loans, POLITICO's Juan Perez Jr., Rebecca Carballo, and Nick Niedzwiadek report.
The agreement with Treasury was finalized in April, according to documents that identified nine Education Department employees — including a person originally assigned to work as part of Elon Musk's DOGE effort — who are detailed to the Treasury Department as advisers. The detailees will 'support Federal Student Aid functions performed in partnership with Treasury,' according to the agreement.
Jobs report
Andy Kampf, formerly of Klarna, has joined Klaros as a partner.
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