An attempt by House Republicans to freeze the Securities and Exchange Commission's budget will meet resistance in the Senate, where the Democratic majority will seek to give the agency the increase recommended in the Obama administration budget.
Last week, the House Appropriations Committee approved a measure 27-21 that would allocate $1.185 billion to the SEC for fiscal year 2012, the same amount that it received for the current fiscal year.
The House bill also would eliminate a $50 million SEC reserve fund created by the Dodd-Frank financial reform law that would support technology upgrades. Under the Obama budget proposal, the SEC budget would increase to $1.407 billion.
In a letter on Tuesday to the House panel, Sen. Jack Reed, D-R.I., Sen. Charles Schumer, D-N.Y., Sen. Dick Durbin, D-Ill., and Sen. Robert Menendez, D-N.J., said that the SEC funding in the House bill would prevent the agency from carrying out its investor protection and market monitoring functions and leave it short of the resources required to implement Dodd-Frank — including new responsibilities to oversee advisers to private-equity and hedge funds.
“With our markets and economy still struggling to recover from the worst financial crisis in 80 years, this is hardly the time to handcuff the primary cop on the beat in our financial markets,” the Democratic senators wrote. “In the wake of the financial crisis, and in light of the proliferation of high-speed electronic trading, the SEC's core mission has grown far in excess of the funds appropriated to the SEC to carry out that mission.”
Republicans on the House Appropriations Committee justified the SEC funding level they provided in a report accompanying the legislation.
“The committee remains troubled with the SEC's management of its operating budget,” the report stated. “The commission has a troubled past with regard to its information technology procurement, renting of leased space, as well as its ability to produce accurate financial statements.”
The Republicans also expressed concern about “the SEC's track record in dealing with Ponzi schemes” and its proposed rule on registering municipal fund advisers, which they suggested “may be overly broad.”
The Senate Democrats maintain that the SEC might have done a better job in catching Bernie Madoff before he bilked investors of billions of dollars if it had had the money to hire necessary staff. They pointed to a report by the SEC inspector general.
“The report repeatedly cites the lack of experience and expertise of the SEC personnel assigned to investigate Madoff,” according to a statement released with the Senate Democrats' letter.
The House Appropriations Republicans called on the agency to hire with more precision.
“The committee believes the commission should target its recruiting toward persons with expertise in capital markets operations and the business operations of the entities that the SEC regulates,” the House Appropriations report stated.
But Republicans said the agency should hire within the parameters of its current budget rather than getting more funding. They said the SEC should take a funding hit — or in its case, a freeze — along with the rest of the government.
“This reduction resulted in some very tough decisions, but they are necessary to reduce the federal government's unsustainable level of spending,” House Appropriations Financial Services Subcommittee Chairwoman Jo Ann Emerson, R-Mo., said in a statement. She was referring to the overall 9% cut for the agencies under her jurisdiction.
The Senate Democrats argue that the SEC's budget has no effect on the deficit because the agency is funded by fees it collects from industry.