Former U.S. CFTC chair criticizes Volcker call to merge agency with SEC

May 20, 2015

A former head of the Commodity Futures Trading Commission has questioned Paul Volcker’s call to merge U.S. regulatory agencies under the leadership of the Federal Reserve.

Volcker, the former chairman of the Federal Reserve, said last month that the Commodity Futures Trading Commission and the Securities and Exchange Commission should be merged under the authority of a Prudential Supervisory Authority. He said that there were too many regulators and that they had too many inconsistencies in their approaches

Brooksley Born was a staunch advocate of regulating derivatives when she headed the CFTC between 1996 and 1999. But she was sidelined by then Federal Reserve chairman Alan Greenspan and Treasury Secretary Lawrence Summers. She was later recognized as prescient when Lehman Brothers collapsed during the financial crisis.

“If we had had a unified system, I might not have been able to speak out,” said Born who was speaking last week at an event organized by the Institute for New Economic Thinking in Washington.

“I think independence of regulators is really critically important. Independence from the political structure, independence from Congress…in terms of the financing and not having to go through the appropriations process. But also independence from the administration which is essentially a political entity. If the CFTC had been a part of the Treasury like the OCC is, I would not have been able to say anything,”

The CFTC wrote most of the rules in the Dodd-Frank Act under the leadership of its former chair Gary Gensler. He was aggressive in writing rules for the $450 trillion swaps market, even if it meant being opposed by fellow regulators. He often cited the collapse of Lehman Brothers and the bailout of the insurer AIG as reasons for creating a regulated swaps market.

Gensler, now the financial head of Democrat Hillary Clinton’s presidential nomination campaign, was adamant that swaps should be traded on exchange-like platforms and firms that trade them should hold enough capital to absorb potential losses from their trades. Some reform advocates have questioned whether the CFTC would have been able to write so many rules if it was under the authority of a unified regulator.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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