Milbank's Joshua Sterling and Amanda Olear say Congress must fill the vacancies on the Commodity Futures Trading Commission to maintain the derivatives market and enact the president's economic agenda.
The Commodity Futures Trading Commission may be the most important financial regulator that you rarely hear about. Normally, it regulates the world's largest financial markets without much fanfare.
When the CFTC was fully staffed with five commissioners during
President Donald Trump's first term, it passed rules that
advanced his agenda and eliminated Obama-era regulations that
failed to do so. Much was done, and little was said about it.
Today, the CFTC can't do anything so ambitious, and it's
drawing attention as a result. That's because commissioners are
exiting by the day, and their replacements are nowhere on the
horizon. As of June 1, the CFTC is down to two members—one
Republican and one Democrat.
For those who love gridlock, this will be great. For the rest of us who (knowingly or not) benefit from the efficient operation of CFTC-regulated markets, it's terrible.
The CFTC regulates the derivatives markets, which are crucial to US economy's prosperity. Derivatives help commercial, industrial, and agricultural companies secure supplies of vital commodities, such as oil, natural gas, metals, and crops. Those financial instruments also help commercial companies, banks, retirement funds, and even individual investors hedge their financial risks.
These markets are enormous—by one measure, more than $600 trillion. For those counting at home, that's about 20 times greater than the US GDP. Derivatives permeate deeply into American life; even the rates on mortgages and car loans are influenced by what happens in those markets. So Main Street and Wall Street alike need a strong cop walking such a large beat. But with a 1-1 stalemate, the CFTC can't even crawl.
It gets worse. Both sitting commissioners have announced their resignations. And one of them, Kristin Johnson, is already working overtime—her appointment expired months ago. It helps that the acting chair, Caroline Pham, has promised to stay on until nominee Brian Quintenz is confirmed. Quintenz's confirmation hearing has been scheduled for June 10. If he does get confirmed, he'll likely wind up serving alone.
A commission of one is hardly a commission at all. For the agency to complete even basic tasks, the chair would have to delegate commission-level authority to permanent agency staff. Those delegations are legally dubious, and they move important decisions one step further away from politically accountable actors—commissioners serve at the pleasure of the president.
Among other perverse outcomes, this means the CFTC chair would have to rely on permanent agency staff in order to achieve Trump's policy objectives. That's the same group of civil servants this administration is actively disassembling.
That irony would be funny if the stakes weren't so high. Setting aside its important duties as a beat cop, the CFTC is also essential to fulfilling Trump's priorities in areas such as crypto, international trade, and energy policy. Do Trump and the people who elected him want career civil servants left practically unchecked to make policy in those areas? Hardly.
Leaving a key regulator undermanned risks letting financial markets critical to the US economy fall into neglect. Those markets are crucial to routine commerce, and they have proven time and again—including during the Covid-19 pandemic—to be an important shock absorber for financial risk. It makes absolutely no sense to leave their oversight in doubt.
It's time to get Quintenz confirmed and get a full slate of commissioner nominees to and through the US Senate. Once that happens, the CFTC can get back to the quiet work of keeping the derivatives markets, and the US economy, humming.
Originally published by Bloomberg Law.
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