Over the objections of Republicans, Democrats on the Senate Appropriations Committee Thursday reported out a bill that would expand the budgets for the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in fiscal year (FY) 2013 to regulate the multi-trillion-dollar derivatives market.
The measure had the support of every single Democrat (16) on the Senate panel, and was opposed by every Republican (14). The bill seeks to raise CFTC spending by 50% in fiscal 2013 to $308 million to accommodate the agency's "significantly expanded responsibilities" under the Dodd-Frank Wall Street Reform Act. The proposed appropriations for the CFTC are part of a much broader spending measure that also would increase spending for the SEC by $245 million to $1.56 billion.
Democrats and Republicans squared off after Sen. Richard Durbin (D-IL), chairman of the Appropriations Subcommittee on Financial Services and General Government, which approved the spending bill Tuesday, accused Republicans on the committee of voting against the bill purely for partisan reasons.
"What's in this bill that's so red hot, the implementation of Dodd-Frank?" he said. "This little agency...has a huge job. Did any of us know what a 'swap' was before this recession?"
He accused Republicans of not wanting to give the CFTC the authorization to regulate the swaps markets.
Sen. Jerry Moran of Kansas, the ranking Republican on the subcommittee, dismissed Durbin's claims that he and other Republicans were directed by the leadership to vote against the spending bill.
"I, too, take offense at the comments [of Durbin]," said Sen. Susan Collins (R-ME). "It is completely unfair and inaccurate to characterize the work of this committee as being dictated by partisan concerns rather than by honest disagreement...To assume that somehow there is this cabal that's been instructed to vote against this bill is completely unfair," she said.
The vote by Democrats on the Senate appropriations panel to hike funding for the two agencies comes only a week after a Republican-led House appropriations subcommittee approved a reduction in spending for the CFTC (see Daily GPI, June 11). After denouncing the House panel's proposed budgetary cut for the agency, CFTC Chairman Gary Gensler applauded action by the Senate spending panels.
"At this funding level, the CFTC will have sufficient cops on the beat to promote swap market transparency, to lower risk to the financial system and to help protect the American people from future fallouts of the financial industry," he said.
"Short-changing this agency [CFTC] would put markets at risk," as the House has done in its appropriations bill, Durbin said. "If we don't have enough cops on the beat...it invites disaster."
Last Wednesday the House Appropriations' Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies approved only $180 million for the CFTC in FY 2013, a cut of $25 million from FY 2012 and $128 million below the amount that President Obama requested for the agency. The proposed funding for the CFTC is part of a broader $19.4 billion appropriations bill. The House Appropriations Committee has not scheduled a mark-up of the spending bill yet, a spokesman said.
Wall Street has been lobbying heavily against reforms to regulate the derivatives market, and lower funding could potentially weaken the CFTC's ability to rein in violators.
In other CFTC news Thursday, Gensler stressed the need for cross-border application of swaps market reforms, especially after JPMorgan Chase executives lost $2 billion in risky trading overseas. "Recent events at JPMorgan Chase are a stark reminder of how swaps traded overseas can quickly reverberate with losses combing back into the United States," he said.
Critics "might tell you that affiliates, even when guaranteed by the mother ship back here in the United States, shouldn't come under Dodd-Frank Reform. They might tell you that affiliates acting as conduits for swaps activity back here shouldn't be brought under Dodd-Frank. If we follow their comments, the result would be that American jobs and markets would move offshore, but particularly, in times of crisis, would come back to affect our economy," Gensler said.
To prevent this, the CFTC staff has recommended to the Commission that "when a foreign entity transacts in more than a de minimis level [$8 billion] of U.S. swap dealing activity, the entity would register under the CFTC's swap dealer registration rules." Swap dealer registration will be required two months after the agency has finalized a joint rule defining the term "swap."
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