Congress has decided to deprive a key regulatory agency of the funds it claims it needs in order to effectively keep an eye on Wall Street.
Lawmakers in Congress have agreed to give the Commodity Futures Trading Commission (CFTC) just $205 million in 2012, one third less than President Obama's budget request, according to The Wall Street Journal. The CFTC regulates derivatives and bets on the future prices of commodities, protecting against fraud and manipulation.
The agreement will give the CFTC only slightly more funding than this year, despite its increased role in regulating derivatives under the Dodd-Frank Act, according to the WSJ.
"We have seen the results of an ill-funded and ill-equipped regulator. It isn't a pretty picture," Bart Chilton, a Democratic commissioner for the CFTC, told Politico. "Congress can fund our agency and we can do the job they have instructed us to do or we will have to pick and choose priorities."
Congress's decision comes just as the CFTC started to investigate MF Global, the brokerage fund that filed for bankruptcy two weeks ago, after the fund made bad bets on Europe. In addition about $600 million of MF Global clients' money has gone missing, according to Reuters.
But the CFTC isn't the only regulatory agency facing a budget squeeze. Congress denied extra funding to the Securities and Exchange Commission just as lawymakers increased the commission's regulatory responsibilities under the Dodd-Frank Act. The SEC asked for 19 percent more funding in 2012, but the House denied the boost instead allocating the same amount of funding to the agency as last year, according to MarketWatch. The Senate had approved funding increases for the CFTC and SEC in September, but Congressional Republicans leveraged their influence to ensure that funding would be frozen at current levels.
Because of their limited staffing, the CFTC and SEC already have missed their July deadline for writing rules mandated by the Dodd-Frank Act, according to The Financial Times. The CFTC said it hopes to finalize its rules on derivatives by next year, the FT reported.
The financial industry stands to benefit from the SEC's funding freeze, not only because of decreased regulatory scrutiny but also because of the limit on fees corresponding with a limited budget. The SEC is self-funded by the fees that it imposes on the financial industry, and the Dodd-Frank Act mandates that the fees that the SEC levies cannot exceed its budget, therefore the smaller the budget, the lower the fees, according to The New York Times.
Congressional Republicans have sought to defang the financial regulatory overhaul legislated in the Dodd-Frank Act last year, both by aiming to delay and water down the rules written by regulatory agencies and by providing those agencies with less funding. The financial industry has also lobbied lawmakers to water down Dodd-Frank, spending more in the first quarter of 2011 than in the previous year, when Dodd-Frank was being written, according to the WSJ.