WASHINGTON — The road to reforming financial regulations winds through the cornfields, hog farms and cattle ranches of America's heartland, and that complicates the Obama administration's already arduous effort to revamp oversight of Wall Street.
Lawmakers from Iowa, Minnesota, Oklahoma and other farm-belt states who sit on the congressional agriculture committees have a surprisingly influential role in the administration's proposed overhaul, which Congress resumes debating today after its summer recess.
Those committees oversee a key regulatory agency, the Commodity Futures Trading Commission, and committee members don't want to give up that role for a big reason -- they raise more money from the financial sector than they do from agribusiness.
Many experts have long believed that it makes no sense to have both the CFTC and the Securities and Exchange Commission regulating markets that have become increasingly indistinguishable. They have advocated merging the agencies.
"If you were to merge the CFTC and the SEC, it would be hard to make the argument that the primary [oversight] committees would be the agriculture committees," said Douglas Elliott, an economic studies fellow at the Brookings Institution.
"That would mean the agriculture committees would lose a significant amount of power that they have, and they also would lose a lot of campaign contributions," Elliott said.
The agriculture committees' oversight of the CFTC stems from its origins regulating markets once dominated by corn, soybeans, pork bellies and other farm products. But the fast-changing world of futures and options contracts became increasingly complex and led to holes in oversight between the CFTC and SEC.
Those contracts spun into sophisticated unregulated products, such as derivatives and credit default swaps, and were at the heart of the nation's financial crisis. They helped prompt the Obama administration to propose the biggest revamp of financial regulation since the Great Depression.
But even though President Obama had wanted to combine the agencies to close the gaps, the agriculture committees' power, many believe, was the reason the administration decided against merging them.
"I think they correctly judged the politics . . . that it would be a serious impediment to the passage of the overall reform bill to merge the SEC and CFTC," Elliott said.
