Federal regulators came under attack on Capitol Hill Thursday for allegedly not carrying out comprehensive cost-benefit analyses of the financial regulatory reforms that they are proposing to implement under the Dodd-Frank Wall Street Reform Act.
The issue was first raised last Thursday by Jill Sommers, commissioner on the Commodity Futures Trading Commission (CFTC), during an agency meeting (see Daily GPI, Feb. 25). She expressed her concern over the commission's "failure to conduct a thorough and meaningful cost-benefit analysis when we issue a proposed rule."
At a Senate Agriculture Committee oversight hearing, Sen. Pat Roberts (R-KS) said he agreed with Sommers. He also noted that he has introduced legislation that would require small independent agencies, such as the CFTC and the Securities and Exchange Commission (SEC), to review of regulations that may discourage job creation and make the U.S. economy less competitive, including regulations that are being proposed under Dodd-Frank.
In mid-January, President Obama signed an executive order calling for a sweeping review of federal regulations, but it exempted agencies such as the CFTC and the SEC (see Daily GPI, Jan. 19).
Both CFTC Chair Gary Gensler and SEC Chair Mary Schapiro defended their agencies. "We are committed to [doing] that" -- performing a cost-benefit analysis of the proposed rules, Gensler said. Moreover, even though not required, he said the CFTC is following the key principles spelled out in the president's executive order.
"We do include cost-benefit analyses in our proposal," Schapiro said.
There couldn't have been "any kind of decent cost-benefit analysis" done on the Dodd-Frank reform regulations, countered Sen. Mike Johanns (R-NE).
Terrence A. Duffy, executive chairman of Chicago-based CME Group Inc., said the CFTC has refused to be governed by the congressionally mandated cost-benefit process. "It is obvious from the...cost-benefit analysis included in the more than 30 rulemakings to date and from the Commission's testimony in a number of congressional hearings, that those responsible for drafting the rule proposals are operating under the mistaken interpretation that Section 15(a) of the CEA [Commodity Exchange Act] excuses the Commission from performing any analysis of the direct, financial costs and benefits of the proposal regulation," he said.
"Instead the Commission contends that Congress permitted it to justify its rulemaking based entirely on speculation about unquantifiable benefits to some segment of the market. The drafters of the proposed rules have consistently ignored the Commission's obligation to fully analyze the costs imposed on third parties and on the agency by its regulations," Duffy said.
CME's Duffy renewed his call for Congress to extend the deadline for the CFTC and SEC to complete the rules implementing the Dodd-Frank Act. The law currently sets a July deadline for the CFTC and the SEC to finish their work. "I think it will take longer than this summer," Gensler told the Senate panel.
Johanns believes the new rules will be harmful to the market. "I do think that we're forcing it [the swaps market] out of the United States," Johanns said. "I don't want to be [a] Chicken Little, running around [saying] 'the sky is falling, the sky is falling,' but I think that we're over-regulating."