WASHINGTON The chairman of the U.S. futures regulator told lawmakers he was sympathetic to their efforts to rein in spending, but warned it would be a mistake to withhold funding from the agency and could put billions of taxpayer dollars at risk.
The U.S. Commodity Futures Trading Commission is writing dozens of regulations to implement the Dodd-Frank law, which was enacted last July and gives the agency oversight of the $600 trillion global swaps market. Most rules have not been finalized.
Republicans who now control the House of Representatives have questioned funding boosts for regulatory agencies as they look to cut government spending and slow enforcement of Dodd-Frank by starving regulators of additional funds.
"We recognize that the budget deficit presents significant challenges to Congress and the American public. But we cannot forget that the 2008 financial crisis was very real," said Gary Gensler, chairman of the CFTC.
"An investment in the CFTC is warranted, because, as we saw in 2008, without oversight of the swaps market, billions of taxpayer dollars may be at risk," he said.
Investors paid higher prices for basic good when commodity prices hit record highs in 2008 and then lost billions when commodity markets and the broader financial sector crashed later that same year.
Gensler told the House Appropriations subcommittee in charge of CFTC funding that the recent surge in prices for commodities, such as energy and agriculture, underscore the need of having an effective cop to oversee the markets.
CFTC FACES FUNDING CRISIS
The Obama administration proposed in February to give CFTC $308 million in fiscal 2012, up 82 percent from its current funding level. It remains to be seen how much makes its way to the agency.
The futures regulator has come under fire from lawmakers, financial institutions that oppose the new reform rules, and other CFTC commissioners for rolling-out the rules without pausing to further study their impact on the swaps market.
"We will have to make some tough choices on this subcommittee when deciding if these budget increases are in the best interest of our country," said Jack Kingston, chairman of the House Appropriations subcommittee that oversees CFTC funding.
Gensler said without the necessary funding, it would have to scale back its investment in technology to assess the swaps market and do proper surveillance.
The CFTC also would have to delay increasing and maybe even cut its staff, which Gensler estimated needs to be as high as 1,200 people by 2013, up from its current level of about 680.
Gensler told a Futures Industry Association conference on Wednesday the CFTC will begin finalizing rules for the over-the-counter swaps markets during the next few months but will miss July deadlines for many regulations set by financial law reforms. He expected to finish the process this fall.
The CFTC will focus first on finalizing rules defining swaps dealers and major swaps participants and "end users" who will be exempt from requirements to clear trades.
The agency still must propose a definition for swaps, and capital and margin requirements for swap dealers and major swap participants.
Chairman Frank Lucas of the House Agriculture Committee told the Reuters Global Food and Agriculture Summit on Wednesday he was talking with other lawmakers to find ways to get the CFTC to put the brakes on the Dodd-Frank rule-making process.
Discussions with other lawmakers are "in the early stages," Lucas said, but if the CFTC fails to "use their authority to slow the process down" the need to get their attention becomes more critical.