Prompt, Full Funding Of The SEC And CFTC Is Essential To Reducing Systemic Risk

Contact: Jeremy Ratner,, (202)540-6507

Washington , D.C. – 12/07/2012 – The Systemic Risk Council1 expressed concern that one of the clearest and most important systemic fixes needed for markets is stuck in political gridlock. SRC Chairman Sheila Bair called for prompt resolution of the funding issues related to market regulators, especially the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC):

“Congressional leadership has extended the temporary funding of government operations through March 2013 at levels that are barely higher than in 2011. This would result in a risky reduction of resources for the nation’s two primary defenders of honest and transparent markets.

“To provide just one dramatic example: the SEC and CFTC have been given critical new responsibilities under the Dodd-Frank Act for regulating the enormous and previously unregulated over-the-counter derivatives market, which has been estimated to exceed $300 trillion in notional amount in the United States and about $650 trillion worldwide.  They cannot carry out these responsibilities without substantial increases in funding. Freezing these agencies’ budgets, even temporarily, effectively hamstrings them and hinders their ability to reduce systemic risks which threaten the stability of the financial system and the economy.  We call on Congress to act promptly to provide the SEC and the CFTC with the increases in funding needed to police Wall Street and protect the financial system.

“We also believe that steps should be taken to establish adequate and ongoing funding for the SEC and the CFTC outside of the appropriations process.  Unlike most financial regulatory agencies which are funded independently through fees assessed on the industries which they regulate, the SEC and CFTC must rely on the Congressional appropriations process for their funding. This means that each year they must go to the appropriators of the House and Senate to seek approval for money to continue to operate.  Regrettably, they have had to repeatedly fight for adequate funding, as industry lobbyists have found that one way to block or slow financial reform is through convincing appropriators to restrict how much money these agencies receive—and even how they can use their funding.

“Certainly, the SEC and CFTC should be accountable to Congress in discharging their statutory missions. The Senate Banking Committee, the House Financial Services Committee, and the Senate and House Agriculture Committees must provide oversight of the agencies’ effectiveness in carrying out the mandates in their authorizing statutes.  As with any organizational entity, be it a business or government agency, to maximize effectiveness, it is essential that these agencies have certainty and continuity in their budget planning.  Their effectiveness will be impaired if their senior staff and chairmen have to engage in constant battles with the industry over adequate funding, while juggling resources and making contingency plans in the event of budget shortfalls.”

We recognize that significant budget challenges must be addressed in order to improve our  unsustainable fiscal situation, but cutting these agencies will not assist in that effort.   At most financial regulators, including at the SEC, financial regulation is paid for by fees – not by the taxpayer.  Extending that authority to the CFTC, and enabling both agencies to be fully self-funded, would lower taxpayer costs and deficit spending and dramatically improve our financial markets.

“If we want to ensure reduction of systemic risk through vigorous supervision of securities and derivatives markets, both regulators need to have a process in place that gives them confidence that they will have adequate funds to discharge their enormous responsibilities over the long term.”

The Systemic Risk Council2

Chair: Sheila Bair, The Pew Charitable Trusts, Former FDIC Chair

Senior Advisor: Paul Volcker, Former Federal Reserve Chair

Brooksley Born, Former U.S. Commodity Futures Trading Commission Chair
Bill Bradley, Former U.S. Senator (D-NJ)
William Donaldson, Former U.S. SEC Chair
Harvey Goldschmid, Columbia Law School, Former U.S. SEC Commissioner
Jeremy Grantham, Co-founder & Chief Investment Strategist, Grantham Mayo Van Otterloo (GMO)
Chuck Hagel, Distinguished Professor, Georgetown University, Former U.S. Senator (R-NE)
Richard Herring, The Wharton School, University of Pennsylvania
Simon Johnson, Massachusetts Institute of Technology Sloan School of Management
Hugh F. Johnston, Exec. VP & CFO, PepsiCo
Ira Millstein, Chair, Columbia Law School, Center for Global Markets and Corporate Ownership
Maureen O’Hara, Cornell University Johnson School of Management
Paul O’Neill, CEO, Alcoa, Former U.S. Treasury Secretary
John Rogers, CFA, President and CEO, CFA Institute
Alan Simpson, Former U.S. Senator (R-Wy)
Chester Spatt, Tepper School of Business, Carnegie Mellon University, former U.S. SEC Chief Economist

 1The independent, non-partisan Systemic Risk Council was formed by the CFA Institute and the Pew Charitable Trusts to monitor and encourage regulatory reform of U.S. capital markets focused on systemic risk. The statements, documents and recommendations of the private sector, volunteer Council do not necessarily represent the views of the supporting organizations.

The Council works collaboratively to seek agreement on all recommendations. This report fairly reflects the consensus views of the Council, but does not bind individual members.

2Affiliations are for identification purposes only. SRC members participated as individuals; the statement reflects their own views and not those of organizations with which they are affiliated.”