As the CFTC widens its LIBOR probe in the wake of a $450 million settlement with Barclays, the agency continues to apply the active approach to regulation that has been favored by Chairman Gary Gensler since he took the helm in 2009.
The settlement, the largest in the CFTC’s history, is a stark contrast to the agency’s stature three years ago, when, according to sources, some banks dismissed its investigation while Barclays questioned its authority to examine a British bank. In addition to the LIBOR probe, the CFTC has been in the news with its investigations of MF Global, JP Morgan Chase, and Peregrine Financial.
Gensler’s willingness to expend political capital has sometimes led him into uncomfortable situations. After his aggressive draft of extraterritoriality provisions of swaps regulation ran into opposition from a majority of the other commissioners, the rules were rewritten to give more leeway to foreign companies and overseas affiliates of U.S. firms. Successes such as the Barclays settlement, however, strengthen Gensler’s hand by lending credence to his argument that more regulation is good for markets.
The change has not gone unnoticed on Capitol Hill, where the CFTC had long been regarded as too small to play an important role.
“The change is night and day,” said Rep. Barney Frank, co-sponsor of the Dodd-Frank Act. “It was a toothless agency,” he said, but when “Gary became chairman, he was very aggressive.”
The effects of the CFTC’s investigation of Barclays continue to ripple through markets. In an effort to keep LIBOR relevant, the UK FSA has announced that it will overhaul the benchmark rate, a move that may impact commodity prices.