In the last budget request of his administration, President Obama distills his position on Wall Street reform into one major principle: If you want to oversee and regulate “critical points of systemic risk” in financial markets, you’ve got to be willing to spend some cash.
In that light, Obama’s five-year plan to double the funding of two major financial regulators — the Securities and Exchange Commission and the Commodity Futures Trading Commission — reflects the president’s enduring concern that financial markets require more regulatory oversight to prevent a future financial crisis.
The funding jumps for both agencies would happen incrementally until 2021, with 11 percent and 32 percent increases for the SEC and CFTC, respectively, this year.
The budget also includes a request, repeated from previous years, to impose a user fee on transactions regulated by the CFTC to help fund the agency. Other banking regulators, such as the Federal Deposit Insurance Corporation, are funded by user fees, and such a funding source could, in theory, provide some insulation from political meddling. The administration also says user fees would transfer the funding burden from taxpayers to the “primary beneficiaries” of the regulatory oversight.
The SEC is already partly funded by transaction fees, and the administration’s budget recommends increasing those fees, particularly on high frequency trading, to help fund the agency’s growing portfolio.
The leaders of both agencies — Timothy Massad at the CFTC and Mary Jo White at the SEC — have frequently called for more resources. During her budget testimony before the House Financial Services Committee last November, White said the broadening of the SEC’s enforcement portfolio has put strains on its budget and capabilities.
“We have responsibilities far beyond our resources. We try to make the smartest decisions we can in core areas, in new areas we’ve been assigned since Dodd-Frank and the JOBS Act, but clearly it becomes a zero sum game at some point,” White said. “It does slow you down, of course it does.”
Slow work at the SEC and other financial regulators could have serious consequences for the White House’s remaining financial services priorities. According to the law firm Davis Polk, over 21 percent of mandatory rules from the 2010 Dodd-Frank act have yet to be finalized. The administration will want to finish as many as it can before Obama leaves office.
Among the rules that have yet to be finalized is a new fiduciary standard for investment advisors, which has been fought vigorously by Republicans and questioned by many Democrats. The rulemaking is taking place at the Department of Labor, which Republicans contend does not have the proper jurisdiction for such a standard. Legislation that passed the House in October calls on the SEC to take charge of any such rulemaking. White, at her November testimony, said that her agency was working on its own standard, but that she had no precise timeline for when she expected the process to conclude — a possible example of how limited resources slow the pace of rulemaking at the agency.
But one of the federal government’s financial regulators requires no new appropriations, and the Obama administration would like to keep it that way. As it did last year, the 2017 budget warns against subjecting the Consumer Financial Protection Bureau to congressional appropriations. The administration and congressional Democrats believe that if the CFPB had to depend on Republicans for its funding, it would be bled dry.
Many Republicans have not been shy about their desire to close the agency, or at least severely clip its wings by limiting its jurisdiction and changing its structure from a powerful single director to an SEC-style five-person commission. They have criticized the agency for its forays into regulating auto-lending and student loans, accusing it of abuse of power and close coordination with consumer groups.
Released on the day of the first-in-the-nation New Hampshire presidential primary, the president’s budget request will likely be seen more as a message to his successor than as a piece of actionable legislation. Indeed, the Republican chairmen of the House and Senate Budget committees have already said they will not hold hearings on the president’s budget request.