Erik Gerding has
a nice post up at The Conglomerate discussing Joel Seligman’s recent NY
Times op
ed, which argues the case for funding the SEC through corporate fees. Currently,
the SEC is funded exclusively by congressional appropriations and has to turn
over fee income to the Treasury. According to Seligman, the SEC already
collects more in filing and transfer fees than it gets from Congress, so the
proposal would not result in higher industry fees.
Though Gerding agrees that the SEC has been underfunded, a
point he makes in a 2006 article, The Next
Epidemic: Bubbles and the Growth and Decay of Securities Regulation, he
argues that:
the Seligman/Obama proposal to fund the SEC through fees has
a potential downside. It may create perverse incentives for regulators to take
steps to increase the overall number of licenses/registration statements — or,
more profoundly, to not take steps that would decrease the amount of fees
generated. To turn around the
title of Seligman's op ed, there is some danger with telling the SEC "help
yourself."
Instead, Gerding favors tying the overall SEC budget (and
the budget of bank regulators) to market capitalization levels without relying
on direct fees.
The piece probably caught my eye because we’re reading an
oldie but goodie in financial derivatives this week: Roberta Romano’s 1997 The Political
Dynamics of Derivative Securities Regulation. Romano traces the history of U.S. dispersed
financial regulation to historical fortuity: the CFTC, SEC, and bank regulators
are within the oversight of different congressional committees. Thus a merging of derivatives
regulation into a single entity would diminish the jurisdiction, and
consequently the influence, of the losing regulator’s congressional committee.
Romano concludes:
In the absence of a sustained, large exogenous shock which could focus
public attention on the regulatory regime and could alter the incentives of the
coalition partners to support it, we can predict with considerable confidence
that . . . the dispersed organization of U.S. regulatory institutions of
financial markets will remain.
The question, of course, is whether the current exogenous shock is
sufficiently large to prompt consolidation. Early on in the crisis, I thought that perhaps the time for
consolidation had finally come.
Today, though, I suspect not.
Some changes are likely to occur, of course, but the impetus for true
consolidation – if, indeed, it ever existed, appears to have passed. Romano, I suspect, remains correct even
today.
In the process of taking
us through the political dynamics, Romano also teaches about the history of the
CFTC, the sunset provision that provided an opportunity for repeated challenges
to its authority, and finally (and most relevantly for this post), its
appropriations bill, which
may become much larger this year. Still a good read, even after all this
time.
"Whoever you are,
I have always depended on the kindness of strangers." – Blanche DuBois