Republican congressmen searching for sizeable spending cuts are targeting Wall Street’s regulators over a plan to slash millions from the budgets of several vital agencies. They are setting their sights on the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The workload of both agencies is expected to increase significantly as the Dodd-Frank financial reform law is implemented. House Republicans want to slash the CFTC’s funding by $56.8 million – nearly 33 percent of the agency’s entire budget — over the next seven months. The SEC’s funding would be cut by $25 million over the same time.
CFTC Chairman Gary Gensler said he would have no option but to reduce his staff from 680 to fewer than 440 if the cuts are approved. “We’d have to have significant curtailment of our staff and resources,” Gensler said. “We would not be able to police…or ensure transparent markets in futures or swaps.” Under Dodd-Frank, the CFTC regulates the multi-trillion dollar derivatives market that includes over-the-counter products called credit default swaps. The story is similar at the SEC, which is working to augment its enforcement of Dodd-Frank. “It (budget cuts) will have a very real effect on the SEC’s ability, not just with respect to Dodd-Frank implementation, but also with respect to our core mission,” SEC Chairman Mary Schapiro said in testimony before Congress.
Leading the charge in Congress is Representative Randy Neugebauer, chairman of the House Financial Services Subcommittee on Oversight and Investigations. One of Neugebauer’s top priorities is assuring that regulators are not “overreaching” and moving too quickly with their new authorities under Dodd-Frank. Neugebauer expressed concern about whether regulators are adequately performing cost-benefit analyses on every rule in Dodd-Frank, a process required under federal rule-making procedures. He expects to call SEC Chairman Schapiro and CFTC Chairman Gensler back to testify about the issue, especially since he believes that Gensler gave him “vague” responses about cost-benefit analyses on derivatives rules. Neugebauer said another of his major priorities will be to rein in the powers of the Consumer Financial Protection Bureau, an entity created under Dodd-Frank. The Texas congressman wants to move the bureau to the Treasury Department and out of the Federal Reserve’s control.
Another congressional Republican makes this point. “When the House and Senate passed the Dodd-Frank Act, supporters continually purported that small financial institutions, like many I represent, were exempt,” Representative Shelley Moore Capito, (R-WV) said. “As the provisions of Dodd-Frank are going through the rule making process, I am starting to hear concerns from small institutions about the unintended consequences that could adversely affect them.”
One point of contention with the Republicans is the orderly liquidation provision that authorizes regulators to seize large financial institutions that are about to fail and dismantle them in a way that is less disruptive than either taxpayer bailouts or bankruptcy.
“People are saying we won’t have the guts” to invoke orderly liquidation, acknowledged Democratic Representative Barney Frank, (D-MA), who co-sponsored the legislation with now-retired Senator Christopher Dodd (D-CT). “Well, we had the guts with regard to the TARP to get the money back. We got it back,” he said, referencing the $700-billion Troubled Asset Relief Program (TARP) that bailed out Wall Street firms and which has been largely repaid. “I don’t have any question that we’re going to go through with it,” Frank said.