U.S. Rep. Barney Frank (D., Mass.), an architect of the financial law passed last summer, said Tuesday budget cuts to financial regulators in Washington would make it impossible to implement new regulations on the derivatives market.
Frank blasted Republican lawmakers for threatening to reduce funding for the Commodity Futures Trading Commission and the Securities and Exchange Commission to 2008 levels. He said the cuts would prevent the CFTC from expanding its ability to regulate the derivatives market, which Frank called "probably the single most dangerous aspect of the financial system."
"The CFTC will not be able to carry out the responsibilities given to it," Frank said.
But key Republican lawmakers said the agencies could not be exempt from fiscal belt-tightening.
"All branches of government--including Congress--have to tighten their belts and find ways to make their money go further," said Scott Garrett of New Jersey, chairman of the House Subcommittee on Capital Markets, in a statement. "A dramatic spending increase to fund the SEC and CFTC, as envisioned by the authors of the Dodd-Frank legislation, would further the mindset that our nation's problems can be solved with more spending, not more efficiency."
Meanwhile, Spencer Bachus, the Alabama Republican who chairs the House Financial Services Committee, questioned whether more funding for the SEC would have the desired effect.
"Past experience indicates that a few investigative reporters have been more effective than the many employees at the SEC in addressing and exposing financial wrongdoing," Bachus said in a statement.
Frank was the lead House of Representatives sponsor of the Dodd-Frank financial reform bill, which relies on the SEC and CFTC to write 152 new rules that supporters say will reduce the risk of another financial crisis.
But the last Congress failed to give those agencies more funding for their increased workloads. So far, the SEC has finalized major rules for one financial sector: asset-backed securities. The agency has deferred action on seven sections of the law "due to budget uncertainty."
Republicans now control the House and are expected to push for cuts on non-defense spending. GOP lawmakers also have said they are worried the agencies are moving too quickly to implement the rules, a concern shared on Wall Street.
Some pieces of Dodd-Frank, such as the new Bureau of Consumer Financial Protection, aren't subject to the GOP's proposed cuts. But the SEC and CFTC need Congress to approve their funding in order to keep running.
With funding at 2008 levels, the SEC "would have to cut off hundreds of staff," said Rep. Maxine Waters of California, the ranking Democrat on the House Subcommittee on Capital Markets.
The Democrats also raised concerns that budget cuts would hamper upgrades to the SEC's information-technology capabilities. In all, they said the SEC and CFTC were about $257 million short of what they need for the current fiscal year. Frank said that number might look like "significant savings," but was not significant in the context of the long-term deficit.
"The majority party is basically resisting any increase in funding for the cops on the financial beat," said Rep. Carolyn Maloney of New York, the ranking Democrat on the House Subcommittee on Financial Institutions.
Frank said he will soon begin pushing the funding issue with GOP lawmakers in the House and the Senate.
-By Ryan Tracy, Dow Jones Newswires; 202-862-9245, ryan.tracy@dowjones.com
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(END) Dow Jones Newswires
January 25, 2011 16:14 ET (21:14 GMT)
Copyright (c) 2011 Dow Jones & Company, Inc.- - 04 14 PM EST 01-25-11
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