During a Feb. 29 hearing on the Commodity Futures Trading Commission (CFTC), members of the House Agriculture Committee assailed the cost – both in treasure and labor – of implementing the new Dodd-Frank regulations governing finance.
In his opening statement, Oklahoma Rep. Frank Lucas, committee chairman, said while the CFTC is implementing new rules “I remain concerned about the breadth of the proposals. Instead of focusing resources on the entities and activities that pose the most significant risks to our financial system, the CFTC is casting a wide net that could needlessly catch end-users.”
An example of this, said the chairman, is the CFTC assurance “that the swap dealer definition would not result in unnecessary registration of end-users, which Congress never intended to fall within the swap dealer category.” Even so, as the CFTC “neared consideration of the rule (the week of Feb. 20), end-users were frantically seeking clarification that their hedging activities would not be classified as swap dealing.”
Additionally, rather than “defer to foreign regulatory authorities in matters concerning foreign entities and transactions” as in the past, Dodd-Frank expands regulatory authority outside the United States. This, suggested Lucas, “not only ignores principles of international law, but it spreads our agencies and resources too thin. It also threatens the international coordination required for global financial reform as envisioned by the G20...
“The confusion over the swap dealer definition and the foreign scope of regulations are just two examples of the many issues on which the CFTC has failed to deliver concrete answers or policy solutions. Our constituents need more than empty reassurances.”
The CFTC – represented at the hearing by its head, Gary Gensler -- was given a brief reprieve from criticism by Minnesota Rep. Collin Peterson, ranking member. “It is safe to say that, so far, the CFTC has done a pretty good job. … As the CFTC continues finalizing more rules, I suspect they will continue to get it right and address the concerns we have heard at our various hearings.
“I know that some have expressed frustration with the CFTC’s process for implementing these reforms. While it has not been a perfect process, we cannot lose sight of the importance of taking the time to do this right.”
Dodd-Frank compliance and a required cost-benefit analysis were the focus of questions from Texas Rep. Neugebauer. Dodd-Frank, he pointed out, has “about 400 different rule-making requirements. … We’re about one-third of the way through the process. The current number is that it takes about 21 million man-hours to comply with the first 140 rules.”
Neugebauer was eager to put that man-hour number in perspective. “It only took 20 million man-hours to do the Panama Canal. … For 21 million man-hours, rather than connect two oceans and creating a huge economic engine, the only thing we’ve united is lawyers and billable hours.”
The importance of cost-benefit analysis “cannot be overemphasized. … We’re giving the American people a lot of regulations that we’re not sure will fix all the issues that many thought were part” of the 2008 economic crisis.
Gensler stiffened his spine and cited the applicable laws and regulations the CFTC has followed, and claimed pride at the commission’s work.
“Do you understand why the cost-benefit analysis is important?” said Neugebauer. “It isn’t just what you’re doing (at the CFTC) but is what’s going on across the whole spectrum. We’re already hearing that, in many cases, there’s duplication, there are conflicts between rules.”
Neugebauer’s fellow Texan, Rep. Michael Conaway, also fretted about the cost-benefit issue.
“The Dodd-Frank bill fundamentally restructured the scope of the CFTC’s responsibilities and oversight obligations and entrusted the commission with the duty of instituting a financial framework capable of making or breaking U.S. markets for years to come,” said Conaway in a post-hearing statement. “I will continue to emphasize the importance of a cost-benefit analysis process that produces the kind of cost-effective safeguards our farmers, producers and consumers need to manage risk in the global marketplace.”