The acting chairman of the Commodities Futures Trading Commission is asking for a funding bump above the White House’s fiscal 2018 proposal, a request being declined by Republican agriculture policymakers despite their endorsing the agency’s message of keeping a balance between regulatory enforcement and vibrant futures and derivatives markets.
California’s David Valadao, the No. 2 Republican on the House Agriculture Appropriations Subcommittee, brushed aside J. Christopher Giancarlo’s $281.5 million request for fiscal 2018 at a hearing on Thursday. Valadao, said the panel would focus on President Donald Trump’s fiscal 2018 request of $250 million.
Lawmakers used the hearing to express their support or opposition to the 2010 Dodd-Frank financial overhaul law (PL 111-203), which gave the CFTC authority to regulate the over-the-counter derivatives market. The House voted Thursday to vote on repealing large parts of the law affecting banks, but not the CFTC regulation of derivatives.
The Trump administration’s request mirrors the enacted funding level provided by Congress since fiscal 2015 despite requests by the Obama administration of more than $300 million. During the Obama era, the CFTC budget was often a flashpoint between the two parties in debates about Dodd-Frank.
Democratic appropriators argued that the CFTC, an independent agency, along with the Securities and Exchange Commission, needed much larger budgets to meet their role as regulators of markets that contributed to the 2008 financial markets meltdown and ensuing recession.
Republican appropriators countered that Dodd-Frank-related rules issued by the CFTC were heavy-handed, imposing additional costs on Wall Street derivatives speculators as well as farmers, power utilities and other businesses that use the financial instruments to hedge currency fluctuations, interest rates, energy prices and other business costs.
Valadao said Democrats used the appropriations process “to convince people Republicans were in the tank with Wall Street.”
Rep. Sanford D. Bishop Jr., D-Ga., the subcommittee’s ranking member, said Giancarlo was on the right path in seeking more money for the CFTC, whose jurisdiction greatly expanded under the Dodd-Frank to oversee the derivatives market. The commission also regulates the futures markets.
Giancarlo, whom Trump nominated in May to serve as the commission’s acting chairman, said the additional $31.5 million in his budget request would:
- allow the agency to hire 15 new economists to do detailed quantitative assessments of costs and benefits of regulations;
- provide for additional examiners to oversee clearing organizations;
improve the commission’s digital technology to aid regulation of the derivatives market;
- identify CFTC regulations that need updating;
and foster financial technology innovations in its regulated markets.
Whatever sum is final in the budget, Giancarlo said the CFTC would strive to keep the United States an attractive place where investors throughout the world want to invest.
“Capital will go where the rules are the best,” he said.
Giancarlo, a vocal critic of several Dodd-Frank rules the commission has issued, said an “overly prescriptive regulation of American derivative markets is part and parcel of the over-regulation of the U.S. economy that thwarts the revival of American prosperity.”
Rep. Rosa DeLauro, D-Conn., pressed Giancarlo to provide examples where regulations designed to protect the economy from a repeat of the 2008-09 financial crisis.
“I can’t find the evidence to support your claim,” DeLauro said.
Giancarlo cited the decline in the number of futures commission merchants — down by a third from 150 in 2007 — who handle derivatives trading for farmers, ranchers and small businesses. He said regulatory costs contributed to the decline but did not account for all of the losses. He said further consolidation in the industry remains a concern because smaller businesses will find their options limited for hedging risk.
DeLauro said she still thinks Giancarlo overstated the effects of regulations. She also warned him against allowing the CFTC to become cozy with the industry it oversees.
Although he has criticized several Dodd-Frank rules the commission proposed, Giancarlo said “Congress got it right” on the law’s Title VII, which created the framework for the CFTC to regulate derivatives.
HR 10, the House bill that passed Thursday, does not address Title VII, and Giancarlo said he expected that section of the law to remain the governing principle for his agency.
Giancarlo, drawing on his business experience, said enforcement against “bad actors” in the market is important to maintain a stable and transparent market.
After the hearing, Giancarlo said the administration was aware of his budget request.
“They have a $4 trillion budget to set,” he said, referring to the administration. “I’m confident that our request is the right request for the agency.”