Can Financial Regulators Afford a Budget Cut?

Can financial regulators afford a budget cut?

  • A key part of Republican budget proposals, including Representative Paul Ryan's much hyped early-April deficit-cutting plan, is a pledge to return spending at most federal agencies to 2008 levels. But for cops on Wall Street, whose beat was immutably altered by the financial crisis, those cuts could weaken existing efforts and undermine new mandates.

    Mary Schapiro, chairwoman of the Securities and Exchange Commission, and Gary Gensler, head of the Commodity Futures Trading Commission (CFTC), went before Congress in March to plead for bigger budgets. President Obama won the agencies some increased funding in 2011 budget talks, but it may not be enough.

    At the SEC, travel is restricted and expert witnesses have become a luxury. A recent study found that the agency needs hundreds of additional employees. The CFTC's 676-person staff is about the size it was two decades ago, and the agency can't afford the latest technology to monitor a growing digital market.

    Republicans argue that financial fraudsters like Bernie Madoff, who long escaped the SEC's notice, indicate that investigators need more oversight, not more money. However, the stakes dwarf the disputed funds. With a combined budget of just $1.4 billion, the CFTC and SEC have, along with their traditional duties, the new responsibility of regulating more than $200 trillion in derivatives, including the exotic instruments that forced markets to the brink in 2008. Republicans insist every agency has to ante up. But denying regulators the funding they say is commensurate with their task may be a poor gamble.