SEC and Commodities commission: Big enough to regulate bigger banks?

Posted on July 31, 2013


WASHINGTON — Lawmakers pressed federal officials Tuesday for a timeline for putting financial reform in place, showing concern about the lack of enforcement power at regulatory agencies.

“Is the regulatory power too dispersed?” asked Oregon Democratic Sen. Jeff Merkley.

Congressional concern follows recent controversy with J.P. Morgan, which was fined for manipulating energy markets, and also questions about Goldman Sachs’ possible manipulation of aluminum markets.

“What needs to be done?” Merkley asked. “Because essentially the law is written time and time again” to prevent conflict of interest with large banks and commodities exchanges.  “Yet somehow we end up with all of that.”

Massachusetts Democratic Sen. Elizabeth Warren said she was unsure whether agencies had enough staff and financial support to go up against large Wall Street corporations. “It seems to me that if Congress wants a tough watchdog, it needs to make sure that the dog hasn’t been starved,” said Warren.

To get the 2010 Wall Street overhaul working, the SEC and Commodity Futures Trading Commission are charged with writing and enforcing a portion of the rules outlined in more than 800 pages of the Dodd-Frank law.

While senators commended both the SEC and CFTC on recent advancements in rule-making, the rules that are out there are yet to be enforced.

“The SEC has proposed or adopted rules for over 80% of the more than 90 Dodd-Frank Act provisions that require SEC rulemaking,” SEC Chairwoman Mary Jo White testified Tuesday to the Senate Banking, Housing and Urban Affairs Committee. CFTC Chairman Gary Gensler added that the hearing comes at an “historic moment” in regulatory implementation, as many of the rules have been written.

But there are still critical rules to be finalized, including cross-border derivatives regulation and the Volcker rule regulating proprietary trading – which White said has received nearly 19,000 comment letters.

Some argue that rule-making jurisdiction simply may not be properly divided between the two regulators. Idaho Republican Sen. Mike Crapo voiced concerns over the efficiency of the SEC and CFTC. He asked: Should there be a single regulator?

The friction between Wall Street and federal regulators slows down the reform process, but so do the internal structures of the organizations, said Michael Greenberger, former CFTC director of trading and markets.

Greenberger, in an interview, said a “functioning commission led by a single director” can get the job done more quickly than the current “Rube Goldberg process” that requires commissioners to vote on every rule.

Also, while big banks have the resources to meet with and influence various commissioners, reform groups such as Better Markets and Americans for Financial Reform “do not have the resources to lobby the commissioners 24-hours, 7-days a week,” Greenberger said.

“It’s very interesting on the Senate side that they’re being pushed for not being done quickly enough,” Greenberger said. On the House side, where Republicans run the show, agencies are being pressured to slow down the rule-making process to consider external effects of each Dodd-Frank rule.

Agencies will have to not only strike the balance in regulation by working with market participants, but also find the resources to carry out reform.

Gensler said he was pleased that  “the swaps market, which once was an unregulated highway, now has streetlights and traffic laws.”

But he added: “Our traffic laws will not be fully effective without a sufficient number of cops patrolling the highways and back roads”
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