SEC presses Congress for budget boost

The leader of the Securities and Exchange Commission (SEC) continued to campaign for a larger budget Thursday, warning lawmakers that current funding is making it difficult for the agency to fulfill its responsibilities.

SEC Chairwoman Mary Schapiro said the agency is being spread thin now that regulators are rushing to implement the slew of regulations mandated by the Dodd-Frank reform law.

She said the agency needs more money to ensure that the Dodd-Frank rollout does not compromise the agency’s ability to oversee and protect the nation’s financial markets.

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“The enactment of the Dodd-Frank Act has added significantly to the SEC’s workload,” Schapiro said. “Over the long term, fulfilling the act’s new oversight responsibilities ... will require significant additional resources or a substantial reduction in the performance of our new duties.”

The budgets of the SEC and Commodity Futures Trading Commission (CFTC) are in limbo due to the ongoing battle in Congress over federal spending.

While the Obama administration asked for increases to both agencies’ budgets to help them deal with Dodd-Frank responsibilities, the budgetary standoff that closed the 111th Congress forced the passage of a short-term spending measure that kept them funded at levels set before the Wall Street law was passed.

Republicans and Democrats have not been able to reach an agreement on a long-term budget bill, and are currently funding the government with a short-term continuing resolution (CR).

When it comes to Wall Street watchdogs, the two parties are miles apart.

The Obama administration’s fiscal 2012 budget request asks for an expanded SEC budget of $1.428 billion, up from the current $1.118 billion.

Republicans, meanwhile, are targeting the SEC for cuts. A comprehensive package that would cut $61 billion in government spending, passed by the House, would reduce the agency’s budget to $1.069 billion. That package was shot down by the Senate on Wednesday.

Schapiro said the House cuts would require the SEC to furlough workers and make it impossible to meet new Dodd-Frank requirements. She said the reduced funds would make hiring difficult as well.

“The almost sad thing here is, right now, we’re able to recruit enormous talent,” she said. “We can get people from hedge funds to come to the SEC ... [which is] exactly the kind of talent we need right now.

“[But] because of hiring restrictions, even just operating under the CR, we can’t bring those people on board.”

Schapiro’s plea received a warm reception from the largely Democratic panel in the Senate.
Sen. Jack Reed (D-R.I.) warned that a strong SEC was critical to the nation’s financial health.

“The SEC is literally the cop that patrols and safeguards our markets, and no one would consider restricting resources to our nation’s police,” he said. “If you don’t properly regulate the markets, then it should come as no surprise when they overshoot.”

“There is a difference between a free market and a free-for-all market,” added Sen. Robert Menendez (D-N.J.).

Even Sen. Mike Crapo (Idaho), the lone Republican who sat in on the hearing, said he recognized the agency was underfunded in the past. While he opposed the Dodd-Frank law, he said he was “willing to see the budget of the SEC supplemented in such a way it can get the task done.”

In the House, meanwhile, a subcommittee of the Financial Services Committee grilled another set of SEC officials and aired a laundry list of complaints.

Rep. Scott Garrett (R-N.J.), the panel’s chairman, said the SEC received substantial increases to its budget in the last decade, growing from $369 million in 2000 to $1.14 billion in 2011. He made it clear he is in no rush to increase it further.

“Before we even think about giving this agency yet another funding increase, at minimum, the agency will need to show major progress in implementing recommended reforms,” Garrett said. “I’m interested to hear from each of the witnesses about spending priorities they have for each of their divisions and offices, but I’m less interested in hearing about how underfunded the agency is.”

He went on to criticize the agency for failing to properly analyze the economic impact of its rules, and asked whether SEC lawyers should continue to unionize.

“Is it even appropriate for a bunch of highly paid government attorneys to be organized in a union to begin with?” he asked.

House Republicans refused to let the SEC off the hook for failing to sniff out Bernie Madoff’s fraud scheme, repeatedly criticizing the agency on that front.

“Without establishing some type of accountability for the agency, you’re just not going to get a whole lot of sympathy or support you otherwise would have,” said Rep. Bill Posey (R-Fla.).