The Republican victory in yesterday’s congressional election won’t interrupt Commodity Futures Trading Commission efforts to write rules to implement the Dodd-Frank regulatory overhaul of the derivatives industry, Commission Chairman Gary Gensler said today.
“Any regulatory agency is obliged to follow the statute and what Congress wrote, and that’s what we’ll do,” Gensler said at the Futures Industry Association conference in Chicago. Addressing the impact of the financial crisis is crucial to the public, regardless of the election’s outcome, he said.
The Dodd-Frank financial overhaul, which became law in July, gave the CFTC a year to establish rules governing the $615 trillion over-the-counter derivatives market, including which companies will face higher capital requirements and increased scrutiny.
Congress took aim at the industry after soured trades on mortgage and credit derivatives tipped the U.S. economy into the deepest recession since the 1930s.
Republicans, who picked up at least 60 House seats across the U.S. yesterday, say they will use the House Financial Services Committee to ensure that regulators such as the CFTC and the new consumer protection bureau don’t write rules that lawmakers consider too restrictive on the banking industry.
Gensler has asked Congress to increase the agency’s budget by 69 percent next year to $286 million and predicts the agency’s budgeted staff of about 650 will need to grow to more than 1,000 to meet its new demands.
“Our needs are the same regardless of the election,” Gensler said. “Our needs are to implement the statute.”
Republicans in the House could tie up funding to enforce derivatives reform after gaining a majority in yesterday’s election, said CFTC Commissioner Bart Chilton.
“We have enough staff to end up with the final regulations, we can put them in place, but we don’t have the ability to do the actual work to have appropriate oversight,” Chilton said in an interview in Chicago.
The law, named for its primary authors, Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and House Financial Services Chairman Barney Frank, a Massachusetts Democrat, aims to stem systemic risk by requiring most interest- rate, credit-default and other swaps to be processed by clearinghouses after being traded on exchanges or swap-execution facilities.
The CFTC has in most cases until July to write rules that cover 30 areas of new regulations.
“This Congress is still in office through the end of December, so the new members elected last night won’t take office until January,” Commissioner Jill Sommers said in an interview at the Chicago conference. Congress may approve the CFTC’s request this year, “but I do think it’s going to become exponentially more difficult to get our budget for 2012,” she said.
The leader of the market most affected by the new rules expressed reservations about the potential impact of the new regulations.
“The biggest concern is there’s a massive delegation of responsibility to the agencies and a lot of room for the agencies to define the direction the markets will go in,” said Craig Donohue, chief executive officer of CME Group Inc., the world’s largest futures market.
“We respect where the CFTC is coming from, but we have a lot of areas of disagreement,” he said. CME Group opposes the CFTC’s proposed limits on how many commodity contracts an investor can hold in the combined OTC and futures markets, for example. The goal must be to avoid doing “extreme violence to the market,” Donohue said.
Jeff Sprecher, chief executive officer of Intercontinental Exchange Inc., owner of the world’s largest credit-default swap clearinghouse, said his contacts in the House and Senate aren’t indicating any change in how Dodd-Frank will be implemented.
“It’s hard to know whether or not people will want to not fund these agencies they’re giving all this responsibility to,” he said. “Gensler’s right that he’s been given a law that he’s forced to implement.”
In the end, Chilton said Congress will fund the commission to avoid risking another financial crisis.
“I don’t think anybody wants to have blood on their hands for the next economic calamity,” he said.
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