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GOP uses purse strings to rein in Dodd-Frank

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The White House managed to squeeze out some concessions from Republicans on funding Wall Street reform in the 2012 budget agreement that the House passed this afternoon. But Democrats ultimately failed to obtain an overall funding increase for one of the main financial watchdogs whose responsibilities will be massively expanded under Dodd-Frank.

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CFTC chair Gary Gensler

Under the new deal, the Commodities Futures Trading Commission will get $10 million more for staffing, thus making layoffs for the agency less likely in 2012. But that money won’t come through a funding increase: In the end, Republicans refused to budge on the overall funding level for the agency, which will stay at $205 million. Instead, $10 million for staffing will be shifted out of the agency’s budget for information technology. The overall level of funding falls significantly short of President Obama’s own request for the CFTC — $308 million, which would be an increase of almost 50 percent — as well as the Senate Democrats’ request for $240 million.

The CFTC may have avoided the worst-case scenario of having to lay off employees just as the agency ramps up to create and oversee a brand-new exchange for over-the-counter derivatives, the complex financial instruments that contributed to the 2009 financial crisis. In an e-mail to his staff, CFTC chair Gary Gensler called the funding agreements “positive developments” that would probably allow the agency to keep staffing at current levels. In a way, the MF Global meltdown may even have helped the CFTC’s case in recent days. Legislators from both parties made it clear that they expected the agency to investigate the bankrupt brokerage thoroughly and prevent such debacles from happening in the future.

But the CFTC has made it clear that the agency will need more money overall to be able to put Wall Street reform into effect. Leaders at the agency have repeatedly warned that budget uncertainty has compelled them to push for more heavy-handed, “prescriptive” rules that extend the oversight of “an undersized and overworked staff,” CFTC commissioner Michael Dunn said in July. So the agency will make the best of its limited resources for now but will continue to make the case for additional funding, one CFTC staffer tells me. Congressional Democrats also promise to stay on the case. “Dems will be pushing to improve the CFTC budget,” says a House Democratic aide, adding that the Obama’s 2012 budget request indicated the kinds of funds that were truly necessary to implement Dodd-Frank effectively.

The call for more money has come even from top GOP officials who’ve regularly criticized the way the agency is putting Wall Street reform into effect. “I think there’s no doubt that we cannot implement and enforce Dodd-Frank without additional funding,” Jill Sommers, a GOP commissioner at the CFTC, told a Congressional hearing at MF Global earlier this week.

Another agency that’s key to Wall Street reform — the Securities and Exchange Commission — managed to fare better under the 2012 budget. The SEC got a $136 million increase over its current funding, raising its budget to $1.3 billion. But that’s $107 million less than what both the House and the Senate had originally proposed. And it came at the cost of a $25 million cut in the SEC’s “reserve fund,” which is set aside for handling financial emergencies.

Republicans have made it clear that they’re willing — and able — to use spending cuts to hold back the agencies at the heart of Wall Street reform. Holding back funding could make the arduous process of crafting and implementing Dodd-Frank’s regulations take even longer, which could in turn increase uncertainty and industry frustration with the law. And that could add momentum to the campaign to overturn Dodd-Frank altogether.

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