Republicans May Underfund Dodd-Frank Implementation

President Barack Obama’s crackdown on Wall Street excesses could be hampered if the incoming Republican-controlled Congress refuses to fund two crucial regulatory agencies.  The Dodd-Frank financial reform law – passed with heavy Democratic support – promised a generous budget to regulate the $600 trillion over-the-counter derivatives market.  Now, the law’s implementation may be derailed by the incoming 112^th Congress.  Randy Neugebauer (R-TX), who will chair the House Financial Services oversight subcommittee, wants to review the regulators’ expansion plans.  “Once you turn the money loose, it’s a little harder to stop that train,” he said.

The two regulatory agencies in question are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).  The SEC, for example, had expected to receive an 18 percent increase to its 2011 budget, which would have allowed it to hire 800 new regulators to enforce Dodd-Frank.  Roadblocks are on the horizon, however, in the form of Representative Spencer Bachus (R-AL), who will chair the House Financial Services Committee, and Frank Lucas (R-OK), who will chair the agricultural committee that oversees the CFTC.  The two Congressmen wrote to regulators, saying “An overarching concern…is the need to get it done right, not necessarily get it done quickly.”  The Republicans’ attitude to enforcing Dodd-Frank could be a boon to Wall Street firms, whose lobbyists are advocating a go-slow approach.

Mary Schapiro, SEC Chairman, said “We will have to take some more steps to cut back.  At this stage, it will impact our work.”  The chronically underfunded and understaffed CFTC, which had expected a 50 percent budget increase, had planned to hire 240 new regulators this year to enforce its new oversight of the swaps market.  According to CFTC Chairman Gary Gensler, “I do think without sufficient funding next summer (2011) you’d see a significant number of registrants – swap dealers, swap execution facilities and so forth – whose legitimate applications would have to be slowed down.  Michael Greenberger, a University of Maryland law professor and previously the CTFC’s director of trading and markets, says.