Tags: Massad | Senate | Dodd-Frank | CFTC

Senate Ag Committee Considers CFTC Funding

By    |   Thursday, 11 Dec 2014 10:19 AM

The Senate Agriculture Committee, chaired by Sen. Debbie Stabenow, D-Mich., held a hearing Dec. 10 titled "The Commodity Futures Trading Commission: Effective Enforcement and the Future of Derivatives Regulation" to air the effect of the reluctance of Congress to fund the CFTC for the ability of the Commission to implement the Dodd-Frank Act. The only witness was the Tim Massad, the former Treasury official who played a prominent role administering the Troubled Asset Relief Program (TARP) and was confirmed as chairman of the CFTC last June, succeeding Gary Gensler.

The hearing was the last hearing of the committee under Democratic leadership for the next two years. Beginning in January the chairman will most likely be Sen. Pat Roberts, R-Kan. However, throughout the hearing Senators stressed the bipartisan spirit in which Senators work to advance the interests of agriculture. It took place against a background of both long- and short-term developments in what this writer has called the "limplementation" of the Dodd-Frank Act.

This writer predicted at the time Dodd-Frank was enacted that over time everyone would seek exemption from it and many would succeed, given that virtually all other legislation that was supposed to solve the ongoing, permanent financial crisis has failed to be implemented. The short-term development is the pending budget package that contains a provision from the Senate Appropriations Committee that apparently would repeal Section 716 of Dodd-Frank, which prohibits bailouts of swaps entities and limits the CFTC's budget to $250 million plus a possible 16 percent increase. The agency has collected several billion in fines and fees, but it cannot spend any more money than the congressional appropriators approve.

During the hearing Senators raised familiar objections to implementing the Act and also raised other issues that will be part of the policy debate next year:
  • Exemption for commercial end users. One of the ways Dodd-Frank is vitiated is through the exemption given to end users of options that are used to hedge their business activities. The point is that only speculators need to be regulated, and those using swaps for legitimate hedging should be left alone. The problem with this is that even swaps used for legitimate purposes entail risk, and the total size of the swaps market has reached the neighborhood of $600 trillion, and even the regulators admit that they don't know how much risk this poses to the U.S. economy whose GDP is only about $15 trillion.
  • Crossborder regulation. The industry has complained bitterly that the U.S. is unilaterally imposing regulations on U.S. traders while UK and EU regulators are lagging behind. Retiring Sen. Mike Johanns, R-Neb., argued that at the end of the day, this puts U.S. firms at a competitive disadvantage. Massad assured the Senators that the Commission is working to develop "bright lines" to distinguish hedging from speculation. Former Chairman Gensler argued that the U.S. must take the lead in regulating the global market because when the market breaks down the risks find their way back to the U.S.
  • Bank involvement in aluminum market. Stabenow and Sen. Sherrod Brown, D-Ohio, both raised the recent report by Sen. Carl Levin, D-Mich., on the operations of warehouses by bank holding companies such as Goldman Sachs that are active in metals markets. Massad assured Stabenow that the CFTC has "indirect authority" to regulate the London Metals Exchange where aluminum is traded.
  • Commission guidance and no-action letters. Both Roberts and Sen. John Thune, R-S.D., complained about the practice of issuing guidance and "no-action" letters that have the force of law without conducting open administrative proceedings. Roberts estimated that 140 no-action letters had been issued with "zero transparency." Thune also objected on the ground that these letters are not subject to the requirement for cost/benefit analyses that applies to regulations.
The prospect is for considerable activity on these and related issues by at least three sets of committees on both sides of Capitol Hill – Banking, Agriculture and Appropriations.

(Archived video and testimony can be found here.)

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Robert-Feinberg
The Senate Agriculture Committee, chaired by Sen. Debbie Stabenow, D-Mich., held a hearing titled "The Commodity Futures Trading Commission: Effective Enforcement and the Future of Derivatives Regulation" to air the effect of the reluctance of Congress to fund the CFTC.
Massad, Senate, Dodd-Frank, CFTC
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2014-19-11
Thursday, 11 Dec 2014 10:19 AM
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