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May 4th, 2011
Dear Senator,
As the Financial Services Appropriations Subcommittee begins consideration of fiscal year 2012 agency funding decisions, we want first to thank you for recognizing the role that the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) play in ensuring the market stability and integrity on which our nation’s financial well-being depends. Due to your leadership, these agencies were spared the dangerous budget cuts for the balance of fiscal year 2011 approved by the House of Representatives and instead received sorely needed funding boosts.
We urge you to build upon the commonsense funding decisions contained in the final 2011 spending bill and fully fund these agencies in 2012 so that they are in a position to carry out the vital regulatory reform functions entrusted to them in the Dodd-Frank Act.
As you know, the Dodd-Frank Act greatly expanded the responsibilities of both the SEC and CFTC particularly with regard to oversight of previously unregulated derivatives markets. Among the most important new tasks given the SEC, for example, 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. Similarly, Dodd-Frank charges the CFTC with oversight of approximately $280 trillion in previously unregulated domestic swaps markets, representing a more than seven-fold increase in the notional size of the market the CFTC must supervise. Strengthening regulation of over-the-counter derivatives is a key step in bringing the “shadow markets” that helped crash the economy under sensible regulation. For these agencies to carry out these new responsibilities effectively, they must receive increased funding.
In order to enable this tiny agency to carry out its vastly expanded responsibilities, the President’s 2012 budget request would increase CFTC funding to $308 million. This increase of roughly $105 million over recently approved 2011 funding levels is very small when compared to the scope of the CFTC’s new responsibilities. Moreover, the President has recommended that this increase be funded in a deficit-neutral manner by imposing a very small fee on users of CFTC-regulated derivatives markets. We support this proposal to offset CFTC funding through user fees. Given the vast size of the markets the CFTC regulates and the tiny budget of the agency, user fees could be set at a level so low as to be all but invisible to market participants. Regardless of whether Congress ultimately ends up adopting the user fee proposal, however, we believe it is absolutely critical to provide the CFTC with the full $308 million called for in the President’s budget.
We also support the President’s budget request of $1.4 billion for the SEC. As you know, SEC funding is entirely offset through fees it collects, and, beginning in fiscal year 2012, fees must be set at a level designed to match agency funding. As a result, giving the SEC the funding it needs to police the marketplace will add nothing to the deficit and, since any decrease in funding would have to be matched by a decrease in fees, cutting the agency’s funding would do nothing to reduce the deficit. Indeed, because these fees currently bring in substantial excess revenue, these fees are likely to be reduced in 2012 even if the SEC is fully funded at the level authorized in the Dodd-Frank Act.
Fiscal year 2012 funding for the SEC and CFTC must be at levels that allow the agencies to fulfill their vital role reining in Wall Street excess. With millions still out of work as a result of the recent financial crisis, we cannot afford a budget that undercuts regulation necessary to protect the economic well-being of all Americans.
Sincerely,
Americans for Financial Reform