April 5th, 2011
Dear Member of Congress,
On behalf of the undersigned organizations, we urge you to support full funding for the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Anything less would deprive these agencies of the basic resources they need to police the safety and integrity of our financial markets and increase the danger of another financial crisis.
CFTC
Under the current continuing resolution, the CFTC is funded at $168.8 million for FY 2011. This funding level, which falls far short of the President’s requested funding of $286 million, does not provide any funds for the agency to carry out its new responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act. H.R. 1, the full-year continuing resolution approved by the House in February, proposed a further $56.8 million cut to this $168.8 million funding level. This is an unacceptable starting point that should be ignored.
It is shocking that Congress would even consider a proposal that would have the effect of eviscerating the agency with central responsibility for assuring transparency and stability in the commodities markets. The price of everyday items from milk to gasoline depends on the fair and open operation of commodities markets policed by the CFTC. The CFTC is even now working to implement Congressional directives on position limits to prevent excessive speculation in key oil and food markets – an effort that will be impossible if these crippling cuts are imposed.
The Dodd-Frank financial reform act also expands the CFTC’s responsibilities to include oversight of approximately $280 trillion in previously unregulated domestic swaps markets. This is a key step in bringing the “shadow markets” that helped crash the economy under sensible regulation. However, it represents a more than seven-fold increase in the notional size of the market the CFTC must supervise. The President’s 2012 budget request would increase CFTC funding to $308 million in order to allow it to undertake these major new responsibilities. This $140 million increase is tiny when compared to the scope of the CFTC’s new responsibilities. Moreover, the Administration has recommended that this increase be funded in a deficit-neutral manner by a very small fee on users of CFTC-regulated derivatives markets.
If we want to protect the economy from further catastrophic financial instability, as well as effectively control commodities speculation, we must bring derivatives markets under sensible oversight. This simply cannot be done without providing the CFTC with the additional funding necessary to implement the Dodd-Frank Act.
SEC
Over the last several decades, millions of middle-income Americans have come to rely on our nation’s securities markets for their retirement security. The SEC has primary responsibility for overseeing the brokers and investment advisers that investors rely on for advice and recommendations, the mutual funds they invest in to fund their retirement, and the disclosures that
help them determine the best place to put their money. Under-funding the SEC puts their financial security at risk, but the House full-year continuing resolution would do just that.
Like the CFTC, the SEC is currently being funded at a level that does not provide any resources for implementation of the new financial reform law. That law gave the agency substantial new responsibilities, including new authority over credit rating agencies and hedge funds. Among its most important new tasks is oversight of the market in security-based derivatives, such as credit default swaps like those that led to the failure and bailout of the American International Group (AIG) in 2008. This segment of the derivatives market is one of the most complex, important, and fastest growing areas of the financial markets. For the agency to carry out these new responsibilities effectively, it will require increased funding.
That reality is reflected in the President’s 2012 budget request, which would increase SEC funding to $1.4 billion, an amount that will be fully offset by fees on financial entities engaging in SEC-regulated securities transactions. In contrast, the full-year continuing resolution adopted by the House would cut an additional $41 million from the agency’s 2011 budget. While less draconian than the proposed reduction in CFTC funding, the proposed cut is nonetheless irresponsible. The SEC budget is a good investment for taxpayers. Last year, for example, the SEC recovered more than twice its budget, $2.2 billion, for defrauded investors. Cutting its budget will inhibit its ability both to detect and deter fraud and to aid defrauded investors to recover their losses.
Conclusion
The CFTC and SEC are vital to the proper functioning of our financial markets. Under-funding them is deeply irresponsible given the potential costs of a financial crisis. Much of the deficit we are struggling to address today reflect the impact of the 2008 financial crisis, which was brought about by under-regulation of our financial markets. Although the economy has begun a slow and painful recovery, unemployment rates remain roughly twice as high as they were prior to the financial crisis. Even today, American households are almost $8 trillion poorer than they were in 2007, before the Wall Street collapse. There should be no debate over relatively small expenditures needed to protect our economy from another such catastrophe. Indeed, it is difficult not to see these cuts as a last ditch effort by Wall Street to block long-overdue regulation, and not a fiscal issue at all.
It is absolutely essential that you reject inadequate funding levels for the SEC and CFTC and instead insist that the agencies Americans depend on to protect their financial well-being and the health of the economy be adequately funded.