Lew attacks reduced funding for financial reform

Treasury Secretary Jack Lew on Thursday denounced proposals in Congress to limit funding for financial reform, saying such efforts would effectively gut the legislation.

"After failing in efforts to block or roll back reforms, some in Congress would now simply starve the regulatory agencies of funding so they lack the resources to do their job," Lew said in a speech at Pew Charitable Trusts. "Failing to fund supervision and enforcement of the new rules amounts to virtual deregulation. "

Lew added, "Illegal behavior or excessive risk taking will go unchecked unless regulators have the resources to conduct regular examinations, monitor suspect behavior and go after those who break the law."

Congress has not increased funding for regulatory agencies such as the Commodity Futures Trading Commission since financial reform was passed three years ago. Instead of passing annual budgets, lawmakers have approved continuing resolutions that maintain spending levels across the government, but have the option of boosting spending for specific purposes.

The CFTC oversees the trading of risky derivatives, among other assets. The federal spending cuts known as sequestration also have constrained agency budgets.

Lew said that if Congress cannot provide "adequate funding," it should consider shifting these regulatory agencies "out of the current budget process" and ensure they're "self-funded" through industry fees, much like banking regulatory agencies.

Lew similarly assailed proposals in Congress to "strip the Consumer Financial Protection Bureau of its independence and undermine its ability to protect consumers."

Republican lawmakers have proposed revamping the bureau so that it's overseen by a bipartisan commission rather than a director and subjecting its budget to congressional approval instead of linking it to Federal Reserve spending.

The CFPB was created by the 2008 Dodd-Frank financial reform to protect consumers from unfair or deceptive practices by financial comp! anies. Lew said the agency has strengthened consumer protections in the mortgage market, brought payday lenders and debt collectors under federal oversight and helped elderly and military families who were victimized by unscrupulous lenders.

"You can see why some out there would want to rein in this agency," he said. "It is now harder to profit from unfair, deceptive and abusive practices. And it needs to stay that way."

Lew said federal agencies have implemented some provisions of the reform legislation, such as establishing the consumer bureau, requiring banks to keep more capital to protect against losses and regulating derivatives trading. They are on the verge of approving others. Several regulatory agencies with oversight over banking are scheduled to meet Dec. 10 to consider adopting a final version of the Volcker rule that would restrict banks' ability to make big trades with their own money. The rule is part of the Dodd-Frank Act, passed in response to the 2008 financial crisis and the Great Recession.

Agencies have been criticized for moving too slowly to put new rules in place.

"We knew from the start we knew from the start that reforming our financial system could not happen overnight," Lew said. But he added, "We have to make tough choices, and very significant progress toward reforming our financial system."