In the 113th Congress, already a dozen bills have been introduced to thwart the CFTC’s discretion to implement Title VII of the DFA, and indeed, to annul the legislative intent of the DFA itself. IATP has criticized these counter-reform initiatives by contributing to and supporting AFR’s detailed opposition letters. Even prior to the budget sequester, the House of Representatives had proposed a CFTC budget adequate to the CFTC of the late 1990s, when the agency oversaw a market one fifth of the current gross notional value in U.S. futures contracts and one fortieth of the gross notional value of over-the-counter (OTC) swaps contracts. Recognizing that the House-proposed budget was inadequate to enforcing the Commodity Exchange Act (CEA), much less to implement the DFA, IATP also has supported CMOC and AFR letters to base the CFTC budget on financial service industry and derivatives end-user service fees. The marked increase in CFTC investigations and enforcement actions into violations of the CEA and other U.S. laws, including global entity violations damaging the U.S. economy, such as the Libor price fixing and the “ISDA [International Swaps and Derivatives Association] fix,” require an adequately resourced agency, as well as one with clear and strong legislative authority. Otherwise, interest rate manipulation and OTC interest rate contracts based on those manipulated rates will continue to inflict billions of dollars of illicit costs on the private sector and on public budgets, e.g., municipal and state bond auctions.
It would be a huge mistake to reauthorize the CFTC in terms that would weaken its ability to implement the DFA and enforce the CEA. From 2007 to 2010, the Federal Reserve Bank system rescued both U.S. and European OTC broker dealers with more than $19 trillion in ultra-low interest rate emergency loans, and enabled European and other central banks to rescue their banks with another $10 trillion in emergency loans. Nevertheless, according to a recent Bank for International Settlements report, there is “…no evidence that that rescued banks reduced the riskiness of their new lending more than non-rescued banks in response to the crisis and the public rescues.”
To reward unreformed and defiant U.S. and foreign private financial institutions seeking yet more exemptions, exclusions and waivers with a CFTC reauthorization that does not strengthen the “comparable comprehensive oversight” required by the DFA, would be to invite more financial civil and criminal violations, regulatory evasion and speculative bubbles. As you consider the terms for CFTC reauthorization, we recommend that you read Senator Carl Levin’s April 23 letter to the CFTC. The letter is a powerful reminder that the terms of the CFTC reauthorization have consequences not only for U.S. commercial hedgers and financial firms, but for also for the foreign affiliates of U.S. banks whose unregulated trading practices have had devastating consequences for the U.S. economy.
Finally, given the possibility that a Farm Bill will not be passed in 2013, we urge you and your fellow Senators to vote on a stand-alone CFTC reauthorization, rather than wait to incorporate it into a 2014 or 2015 Farm Bill.
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