SEC Bracing To Lose Funds, Scaling Back Investigations
UPDATE: Reuters reports that U.S. financial regulators could be getting some budget soon under a spending bill released on Tuesday. Here's Reuters:
The Commodity Futures Trading Commission would get a budget increase of 69 percent, while the Securities and Exchange Commission would get an increase of 18 percent under the bill, according to a summary posted on the website of the subcommittee that funds both agencies.
As lawmakers in Washington attempt to slash the budget, Wall Street regulation could be on the chopping block.
The Securities and Exchange commission has already scaled back its investigations of potential wrongdoing, anticipating that it may lose a portion of its funding when Republicans take over the House of Representatives next year, the Wall Street Journal reports. During this critical time for the SEC, as it helps write the rules for a wave of new financial regulations, and as it tries to determine whether Wall Street firms committed wrongdoing of potentially epic proportions, the agency is paring down.
To achieve its growing list of goals, the SEC had planned to increase its staff by 11 percent next year, counting on a budget increase of 12 percent, proposed by President Obama, the WSJ notes. It's unclear at this point whether that increase will be approved. The agency, worried that the newly Republican House will push for austerity, has already cut back.
"It is not helpful for the wheels of investigations to grind to a halt," former SEC lawyer Jacob Frenkel told the WSJ.
The SEC is currently in the process of fleshing out implications of the Dodd-Frank Act, the landmark financial regulation that passed this summer. Among its other tasks, the SEC has to help determine rules governing executive pay on Wall Street. Pay practices that rewarded short-term risk-taking pushed executives to make bets that hurt their companies' long-term health and contributed to the worst financial crisis since the Great Depression.
In addition, the SEC is investigating whether banks withheld crucial information from investors who bought complicated securities known as CDOs. These securities, based on bundles of subprime and prime mortgages, wreaked carnage among investors and banks, contributing to the financial crisis.