It's looking like the CFTC may not be able to hire a single one of the 400 employees the agency wanted to bring on to help implement Dodd-Frank, following Senate action this morning. SEC hiring will also be affected.
The Senate voted to pass a continuing resolution (CR) to keep the government funded at 2010 levels through March 4, 2011.
"Generally speaking, while a short-term CR [continuing resolution] is not fatal, it is not an ideal way to fund programs and initiatives -- new and ongoing," said an administration official in the Office of Management and Budget. "We will work with Congress in the coming months to secure the necessary funding for the government programs and services."
This latest CR, a type of legislation used to fund the government temporarily, doesn't allocate money for financial regulatory reform. This means that the CFTC won't receive the $286 million it was supposed to have been given to hire for finreg. Without that money, the agency won't be able to bring on staff to help regulate the derivatives market or to help with enforcement. A new bill appropriating the funds could still be passed in 2011.
The agency declined to comment.
"Given the burden that was put on the CFTC, this is going to make it close to impossible to meet its statutory deadlines," said Peter Henning, a securities law professor at Wayne State University and a former senior attorney in the Division of Enforcement at the SEC. "It takes months to staff up an agency. This is money they should have had three months ago."
As for the SEC, chair Mary Schapiro said her agency's rosters were just now reaching 2005 levels. The SEC's budget was supposed to increase to $1.258 billion from the 2010 allocation of $1.18 billion, which would have allowed for more hiring to staff five new offices. The CR does not provide that new funding and the offices are not opening for the time being.
Panicking Too Soon?
Not everyone expects the agency to suffer from the extension. The CFTC has recently been taking heat for moving too quickly on drafting finreg rules, a sign for some that the agency can manage without the additional staff for the time being.
"They can't go on forever without additional staff, but at the present levels, they've been moving along very effectively," said Michael Greenberger, a law professor at the University of Maryland and former director of the division of trading and markets at the CFTC.
Greenberger believes that the impact of not getting more staff will affect the agency's ability to enforce the regulations, which won't be an issue until next year. Right now, the agency is concentrating on building the infrastructure itself.
Some believe that the Republicans who are against Dodd-Frank are using the legislative and appropriations processes to cripple its mandate.
"I don't know if the Republicans will realize how necessary the funding is by March," Henning said. "There has been a reaction against regulatory reform and one way to slow that down is to interfere with the money. The question is, is this part of a larger agenda?"
Greenberger doesn't think so. He argues the Republicans on the Senate appropriate committee are "invested in the strength of the CFTC" because it's their jurisdiction. "They won't accept the strangulation of the agency because it undercuts their committee if they do," he said.
Continuing resolutions and budget crises aren't unusual, but in these circumstances, additional contingency funds could be made available for the agencies that need to carry out Dodd-Frank obligations.
It won't happen, said John Bray, a spokesperson for the Senate Appropriations Committee. The bill doesn't allow for any "anomalies," he said. When asked how the agencies will be able to fulfill finreg without the requisite staff, he said it would be a challenge.
The issue of more funding will be taken up again in March, when the CR expires.
Write to Julie Steinberg