December 5, 2023

DealBook: On Capitol Hill, Regulators Plead for More Money

Mary L. Schapiro, the S.E.C.'s chairwoman, and Gary Gensler, the C.F.T.C.'s chairman.Andrew Harrer/Bloomberg NewsMary L. Schapiro and Gary Gensler.

Financial regulators asked lawmakers on Wednesday for more money to enforce dozens of new rules and oversee Wall Street.

Although the Commodity Futures Trading Commission and the Securities and Exchange Commission received some additional money in April, the agencies say they are still hurting for cash. Now, the regulators are adopting a refrain more familiar to disappointed sports fans than powerful regulators: wait till next year.

Gary Gensler, the Commodity Futures Trading Commission’s chairman, and Mary L. Schapiro, the S.E.C.’s chairwoman, told a Senate appropriations subcommittee that they needed hundreds of millions of dollars in 2012 to prevent another financial crisis.

“In 2008, both the financial system and the financial regulatory system failed the test for the American public,” Mr. Gensler said in testimony before the subcommittee that doles out money to financial regulators.

In the wake of the crisis, Congress passed the Dodd-Frank Act, which requires Mr. Gensler and Ms. Schapiro to oversee the $600 trillion swaps market, an industry at the center of the financial crisis.

“An investment in the C.F.T.C. is warranted, because, as we saw in 2008, without oversight of the swaps market, billions of taxpayer dollars may be at risk,” Mr. Gensler told the subcommittee. The panel is weighing whether to increase regulatory budgets during the government’s fiscal year 2012, which starts on Oct. 1.

Ms. Schapiro said any cuts would have a “profound impact” on her agency.

Still, the agencies are hardly poor.

Both agencies received more money in April, on top of earlier budget increases approved in the aftermath of the crisis. The S.E.C.’s budget increased 6 percent this year, to $1.18 billion, which is nearly triple what it was a decade ago. The Commodity Futures Trading Commission’s budget recently grew 20 percent, to $202 million.

But the new money falls short of what President Obama had requested for the agencies and what the Dodd-Frank Act had called for them to receive.

As DealBook reported on Tuesday, the agencies are still struggling to fill crucial jobs, enforce new rules and upgrade market surveillance technology. Regulators warn that their money problems have also jeopardized their most important duty: keeping an eye on Wall Street.

The Commodity Futures Trading Commission says the uncertainty has forced it to delay some investigations and forgo other potential cases altogether. The S.E.C.’s enforcement division has adopted cutbacks, too, including curbing its use of expert witnesses in some securities fraud trials.

The agencies also face substantial new responsibilities under Dodd-Frank, which requires the S.E.C. to write more than 100 new rules, open five new offices and publish more than 20 studies.

To do so, the S.E.C. has requested a $1.4 billion budget for 2012, a roughly $220 million increase over its current funding. The Commodity Futures Trading Commission wants to add $106 million to its budget, which would bring it to $308 million.

But Republicans are looking to slash the agencies’ budgets, as the nation’s budget deficit swells. The Republican-controlled House of Representatives recently approved a 2012 budget plan that would roll back spending to 2008 levels, which would make huge dents in the regulators’ budgets.

“We’re all aware of our budget deficit,” said the subcommittee’s ranking Republican, Jerry Moran of Kansas. “Simply increasing funding does not ensure that an agency can successfully achieve its mission.”

Mr. Moran also questioned whether Mr. Gensler’s budget should focus more on increasing the agency’s market surveillance technology, rather than hiring new lawyers.

Mr. Gensler agreed that “technology is absolutely critical,” and his agency would roughly double its technology budget if it received a flood of new money. But he added: “You can’t send a computer into court to plead a case.”

Ms. Schapiro also warned that funding cuts “would have a devastating impact on the agency’s ability to protect the public from financial fraud.” The agency, she said, would begin fewer investigations into Wall Street wrongdoing, delay examinations of banks and other public companies and suspend its “tips and referrals” system that alerts the agency to potential fraud.

Ms. Schapiro noted that her agency costs taxpayers nothing. The agency offsets its budget with fees collected from the financial industry, often turning a profit for the government.

The Commodity Futures Trading Commission does not collect such fees, although its budget for 2012 would allow the commodities commission to start doing so, which would generate $117 million for the budget.

“The C.F.T.C. is a good investment for the American public,” Mr. Gensler said. “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. “

The regulators on Wednesday received some reason to hope for bigger budgets, as the subcommittee’s Democratic members expressed support for the agencies.

“We depend on their foresight and leadership,” said Senator Richard J. Durbin of Illinois, the Democratic chairman of the panel.

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