Obama budget opens new battle over funding for financial regulators

President Obama’s fiscal 2014 budget request has reignited the fight over exactly how much money Washington should dole out to keep an eye on Wall Street.

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In his budget proposal released Wednesday, Obama called for major funding boosts to a pair of financial regulators — 27 percent for the Securities and Exchange Commission (SEC) and 54 percent for the Commodity Futures Trading Commission (CFTC). 

Both regulators were handed significant new responsibilities with passage of recent legislation, especially the Dodd-Frank financial reform law. And both have their budgets set by Congress, allowing for Republican critics of the law or expanded government spending in general to have their say.

The White House has demanded big funding boosts for regulators every year since Dodd-Frank was enacted, and every year Republicans have resisted those efforts.

But even though the White House and the regulators contend that the new funds are critical to fulfilling their mission of Wall Street reform, there is little indication that Republicans are backing down from their prior objections, especially now that policymakers’ focus has shifted to trimming down rather than beefing up.

All told, the SEC’s budget would grow to $1.674 billion under the president’s plan from its current level of $1.3 billion. The CFTC's budget would jump to $315 million from its current funding level of $205 million.

The requested budget hikes are actually just slightly higher than the requests Obama made in his 2013 budget proposal, which called for $1.566 billion for the SEC and $308 million for the CFTC. That budget was never enacted.

But the regulators' budgets are actually expected to shrink if sequestration stays in place. Both regulators would face cuts of roughly 8 percent if those automatic cuts are left in place for the remainder of the year.

Many Republican lawmakers argue that the regulators, which had their share of missteps before the financial crisis, do not deserve more funds and are second-guessing a host of their decisions. 

Others contend that regulators have already seen several funding boosts in the years following the crisis, and question the need for even more during leaner times.

“Since the financial crisis of 2008, the CFTC has enjoyed six consecutive increases in funding, for an overall increase of 85 percent. In light of the commission’s funding history and today’s tough economic environment, this subcommittee must question the wisdom of fulfilling such a large request,” said Rep. Robert Aderholt (R-Ala.), who chairs the House Appropriations subcommittee overseeing the CFTC’s budget.

For their part, Democrats have pushed to meet Obama’s request, arguing the regulators need it to do the essential job lawmakers gave them.

“Congress responded to the crisis by enacting the Wall Street reform law, and delegated important new responsibilities to each agency,” said Rep. Maxine Waters (D-Calif.), the ranking member of the House Financial Services Committee. “The SEC and the CFTC must have the resources necessary to ensure fair and competitive operation of the nations’ financial markets.”

On Friday, CFTC Chairman Gary Gensler appeared before Aderholt’s panel to argue for the funding boost. He said that those earlier funding boosts were just getting the CFTC back up from the historic budgetary lows they faced before the financial meltdown. While vowing to spend money wisely, he pushed for more.

“I fear that if we were not to get these resources, it’s harder to ensure the integrity of these markets,” he said.

In its budgetary justification, the SEC warned that its current funding would not allow it to keep up with rapidly changing financial markets. The additional funds would allow the SEC to hire 676 new people. And the agency pointed out that its budget does not add a cent to the deficit, since it obtains the funds from fees assessed on the financial industry.

One possible carrot for Republicans is another major SEC responsibility, implementing the Jumpstart Our Business Startups (JOBS) Act. 

That law, passed in a rare bipartisan move by the last Congress, is aimed at making it easier for small businesses to raise capital. But lawmakers, especially Republicans, have openly criticized the SEC for its slow going work on writing the rules. The SEC said a bigger budget would allow it to hire 25 new people primarily charged with implementing the law.

The Republican budget produced by House Budget Committee Chairman Paul Ryan (R-Wis.) does not itemize the funding levels it would grant the SEC and the CFTC, but it did not mince words in describing one of their biggest responsibilities. 

The budget said Dodd-Frank “epitomizes the trend of government overreach of the private sector” and is “an enormous transfer of power to the same bureaucrats who were blindsided by the financial meltdown.” 

The budget vowed to repeal key pieces of the law that would give banking regulators the power to wind down failing financial institutions, using a temporary backstop of taxpayer funds if necessary.

The budget produced by Senate Democrats would protect funding the financial regulators, including the SEC, and return them to pre-sequestration levels.