Obama nominates Treasury official to lead Wall Street regulator CFTC

Staff Writer
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(c) 2013, The Washington Post.

WASHINGTON — President Barack Obama on Tuesday nominated senior Treasury Department official Timothy Massad to lead the Commodity Futures Trading Commission, a key Wall Street regulator that has grown in prominence as it has implemented central aspects of the Obama administration's financial overhaul legislation.

Massad is the assistant Treasury secretary who oversees the Troubled Assets Relief Program, the financial-crisis-era initiative that sought to stabilize the banking and housing sectors and provided financial relief to auto companies.

Massad would succeed Chairman Gary Gensler, who is leaving after nearly five years at the helm of the CFTC, where he developed a reputation as being tough on Wall Street and an advocate of strict financial regulation.

Under Gensler, the CFTC, once a backwater agency, gained new stature. The CFTC pushed for tough oversight of the derivatives market — a previously unregulated but massive market that exacerbated the 2008 financial crisis. The agency also took on high-profile financial enforcement cases.

In remarks Tuesday at the White House, Obama praised Gensler's tenure, and said Massad would continue to advance policies that would protect Americans from financial misconduct.

"Gary has one of the smallest budgets of any of the agencies charged with protecting consumers, but he has done as much as anybody to implement financial reform," Obama said.

Turning to Massad, the president said "he is the right man to lead an agency designed to prevent future crises — because I think it's safe to say that he never wants to have to manage something like TARP again."

In the fall of 2008, Congress passed, and President George W. Bush signed into law, the TARP program, which authorized Treasury to spend as much as $700 billion bailing out banks, homeowners and other firms central to financial stability.

It was a deeply controversial program, but Obama pointed out Tuesday that it has been profitable.

The rescue plan ultimately disbursed $421 billion. Thanks to repayments by the nation's biggest banks, which have largely returned their bailout funds with interest and dividends, the program has recovered $424 billion.

TARP, however, still has $21 billion of investments outstanding, including in Ally Financial and General Motors.

A majority of the 91 institutions remaining in TARP are small banks that have had difficulty repurchasing their shares. Treasury has auctioned off its shares in more than a hundred community banks, often at a loss. Still, it has turned a profit from its small-bank investment.

The pace of repayments picked up under Massad, who has been hailed in some quarters for effectively managing the wind down of TARP.

Massad has not previously worked at a financial regulator, but officials say he is deeply familiar with the field through his work at a major law firm, Cravath, Swaine & Moore, where he spent the bulk of his career since graduating from Harvard Law School. He also advised the Congressional Oversight Panel, which reviewed the causes and response to the financial crisis.

"Massad has not, in his previous work, been required to address the issues the CFTC is responsible for," said Lisa Donner, executive director of Americans for Financial Reform. "It is not clear from what we know whether he is the right person for the job. There needs to be a serious inquiry into his views and perspectives as part of the consideration of his confirmation."

The CFTC is at an important crossroads. The 2010 Dodd-Frank Act directed the agency, with 674 employees and a $194 million budget, to oversee a $400 trillion piece of the unregulated derivatives market, a key contributor to the financial crisis. The CFTC has almost finished writing the rules mandated by the law and must now get Wall Street to comply.

"Gensler did an outstanding job while overcoming daunting, relentless and historic opposition from Wall Street," said Dennis Kelleher, chief executive of Better Markets, a nonprofit group. "The real question comes down to whether Massad has the guts, independence, commitment and values to make financial reform a durable value."

If confirmed, Massad may face the Herculean task of implementing dozens of new rules without a full panel. Commissioner Bart Chilton, who has served on the five-member board since 2007, announced last week that he plans to leave the agency soon. Meanwhile, the seat left open after Commissioner Jill Sommers resigned in July remains vacant.

No sign of trouble emerged Tuesday for Massad's confirmation by the Senate.

"He is exactly the type of leader the CFTC needs as the commission works to implement the new Wall Street reform rules, strengthen the agency's ability to hold wrongdoers accountable, and collaborate with regulators both here and abroad to improve oversight of the global derivatives market," said Sen. Tim Johnson, D-S.D., chairman of the banking committee.