Barack Obama’s plan to overhaul the structure of financial regulation leaves in place the split between those regulators who supervise the trading of futures at the Commodities Futures Trading Commission and those who supervise stock trading at the Securities Trading Association. And while there may be good reasons to keep the commissions separate, mostly likely none of those informed the Obama administration’s decision. Instead it was probably just cold politicial calculation.
Merging the commissions has long been a popular idea with reformers. It was proposed by Hank Paulson when he was Treasury Secretary, and it is supported by many who think that the divide between the New York centered functions at the SEC and the Chicago centered functions at the CFTC has created unhealthy regulatory gaps. Opponents of merging the commissions can argue that regulatory consolidation rarely leads to greater effeciency, that the Chicago-New York divide in the regulatory structure is beneficial because it reflects a real divide among trading cultures, that years of turf battles that follow regulatory mergers would be too much during while the financial crisis continues and that competition between regulators for jurisdiction leads to bettter regulation.
But the merger’s greatest obstacle weren’t these ideas. Indeed, it’s hard to find anyone willing to make these points–they’re more like debaters points that you could imagine an imaginary opponent of reform making. Instead, what seems to have made merging the commissions is that fact that each commission is supervised by different legislative committees.
The SEC is regulated by the Senate Banking Committee and the House Financial Services Committee. The CFTC falls under the oversight of the Agricultural committees in each house. Any consolidation would deprive one set of committees of its jurisdiction, a serious loss of power, influence and access to campaign cash for the leaders and members of that committee. Most likely, it would have been the agricultural committees that would have lost their supervisory role. And, as the steadfastness of agriculutral subsidies demonstrates, those committees are some of the most powerful on Capitol Hill.
Obama needs support of Congressional and Senate Democrats to pass not only the financial regulatory reform, but also his climate and health care proposals. He mosst likely decided he couldn’t risk angering the members of the agricultural committees by proposing taking away their authority. And so one of the most basic pieces of regulatory change was dropped for political considerations.
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