One of Donald Trump’s proclaimed objectives, when he arrived in Washington, was to shrink the size of government. His first proposed budget slashed programs at the EPA and Department of the Interior by up to 30%. A recipient of the Nobel Memorial Prize in Economic Sciences, economist Joseph Stiglitz said about the 2018 budget proposal: "Trump's budget takes a sledgehammer to what remains of the American Dream".
As it happened, this draconian vision did not come to pass. The budget that was eventually passed, after a good amount of drama, restored most of the budget and even increased some lines over the amounts from the previous Obama-administration budget. However, cuts to one small part of the Treasury Department remained.
The Office of Financial Research was created by the Dodd-Frank Financial Reform Act as part of the reaction to the financial crisis of 2008. It was intended to create a forward-looking set of capabilities and research on the stability of the financial system as a whole. Other parts of the Federal government take siloed views of specific markets or kinds of financial instruments. The OFR was meant to have a holistic perspective.
At the time the Dodd-Frank Act was written, it was clear that Congress could and did use its budgetary authority to restrict the ability of financial regulators to function effectively. For this reason, the OFR was funded directly by payments into a fund (the Financial Research Fund, FRF) from banks larger than $50 billion in assets.
While this funding mechanism worked to insulate the OFR when there was a Democrat in the White House, it worked the opposite way under Trump. The President’s budget proposal shrank the FRF, and therefore the OFR.
It takes a long time to fire people in the Federal government, but that day finally arrived this week. Donald Trump has got his wish and shrunk an Obama-era innovation. Originally intended to be a 33% staff cut, it wound up being about 20% because many people had already left. But about 40 people were given separation notices, and I was one of them.
Monitoring systemic risk to global financial stability is an important mission. I’ve been very proud of my work at the OFR, and the work of my associates. I’ve led a lot of my public talks with the idea that we are closer to the next crisis than we are distant from the previous one. I still believe that’s true.
Disclaimer: Opinions expressed are personal and do not represent the positions of the US government.