S. HRG. 110–285 Senate Hearings Before the Committee on Appropriations Financial Services and General Government Appropriations Fiscal Year 2008 110th CONGRESS, FIRST SESSION H.R. 2829 COMMODITY FUTURES TRADING COMMISSION DEPARTMENT OF THE TREASURY DISTRICT OF COLUMBIA FEDERAL DEPOSIT INSURANCE CORPORATION NONDEPARTMENTAL WITNESS OFFICE OF MANAGEMENT AND BUDGET SECURITIES AND EXCHANGE COMMISSION SMALL BUSINESS ADMINISTRATION THE JUDICIARY Financial Services and General Government Appropriations, 2008 (H.R. 2829) S. HRG. 110–285 FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2008 HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED TENTH CONGRESS FIRST SESSION ON H.R. 2829 AN ACT MAKING APPROPRIATIONS FOR FINANCIAL SERVICES AND GENERAL GOVERNMENT FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2008, AND FOR OTHER PURPOSES Commodity Futures Trading Commission Department of the Treasury District of Columbia Federal Deposit Insurance Corporation Nondepartmental witness Office of Management and Budget Securities and Exchange Commission Small Business Administration The judiciary Printed for the use of the Committee on Appropriations Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html U.S. GOVERNMENT PRINTING OFFICE 33–917 PDF WASHINGTON : 2008 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 COMMITTEE ON APPROPRIATIONS ROBERT C. BYRD, West Virginia, Chairman DANIEL K. INOUYE, Hawaii THAD COCHRAN, Mississippi PATRICK J. LEAHY, Vermont TED STEVENS, Alaska TOM HARKIN, Iowa ARLEN SPECTER, Pennsylvania BARBARA A. MIKULSKI, Maryland PETE V. DOMENICI, New Mexico HERB KOHL, Wisconsin CHRISTOPHER S. BOND, Missouri PATTY MURRAY, Washington MITCH MCCONNELL, Kentucky BYRON L. DORGAN, North Dakota RICHARD C. SHELBY, Alabama DIANNE FEINSTEIN, California JUDD GREGG, New Hampshire RICHARD J. DURBIN, Illinois ROBERT F. BENNETT, Utah TIM JOHNSON, South Dakota LARRY CRAIG, Idaho MARY L. LANDRIEU, Louisiana KAY BAILEY HUTCHISON, Texas JACK REED, Rhode Island SAM BROWNBACK, Kansas FRANK R. LAUTENBERG, New Jersey WAYNE ALLARD, Colorado BEN NELSON, Nebraska LAMAR ALEXANDER, Tennessee CHARLES KIEFFER, Staff Director BRUCE EVANS, Minority Staff Director SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT RICHARD J. DURBIN, Illinois, Chairman PATTY MURRAY, Washington SAM BROWNBACK, Kansas MARY L. LANDRIEU, Louisiana CHRISTOPHER S. BOND, Missouri FRANK R. LAUTENBERG, New Jersey RICHARD C. SHELBY, Alabama BEN NELSON, Nebraska WAYNE ALLARD, Colorado ROBERT C. BYRD, West Virginia (ex officio) THAD COCHRAN, Mississippi (ex officio) Professional Staff MARIANNE UPTON DIANA GOURLAY HAMILTON MARY DIETRICH (Minority) RACHEL JONES (Minority) Administrative Support ROBERT RICH LASHAWNDA SMITH (Minority) (II) CONTENTS FRIDAY, MARCH 9, 2007 Page Commodity Futures Trading Commission ............................................................. 1 Small Business Administration .............................................................................. 19 WEDNESDAY, MARCH 21, 2007 The judiciary ............................................................................................................ 49 WEDNESDAY, MARCH 28, 2007 Department of the Treasury: Office of the Secretary ........................................... 111 WEDNESDAY, APRIL 11, 2007 Office of Management and Budget ......................................................................... 155 WEDNESDAY, MAY 2, 2007 District of Columbia: Courts ................................................................................... 201 WEDNESDAY, MAY 9, 2007 Department of the Treasury: Internal Revenue Service ...................................... 253 WEDNESDAY, MAY 16, 2007 Securities and Exchange Commission ................................................................... 341 MATERIAL SUBMITTED SUBSEQUENT TO THE HEARING Federal Deposit Insurance Corporation ................................................................. 373 Nondepartmental Witness ...................................................................................... 377 (III) FINANCIAL SERVICES AND GENERAL GOV- ERNMENT APPROPRIATIONS FOR FISCAL YEAR 2008 FRIDAY, MARCH 9, 2007 U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC. The subcommittee met at 8:50 a.m., in room SD–138, Dirksen Senate Office Building, Hon. Richard J. Durbin (chairman) pre- siding. Present: Senators Durbin, Bond, and Allard. COMMODITY FUTURES TRADING COMMISSION STATEMENT OF HON. REUBEN JEFFERY III, CHAIRMAN ACCOMPANIED BY: MIKE DUNN, COMMISSIONER WALT LUKKEN, COMMISSIONER STATEMENT OF SENATOR RICHARD J. DURBIN Senator DURBIN. Good morning and welcome. I’m going to start a few minutes early, which is totally atypical of Capitol Hill but it’s an indication of the fact that we are going to have a rollcall vote at about 9:30 and I have a dual responsibility of chairing this im- portant subcommittee and serving as majority whip on the floor. So I’ll have to be there right as the rollcall begins and we’ll have to interrupt this hearing for a brief time, as two votes are taken. So I apologize to those who may be a little bit surprised by a 10- minute earlier start but I hope that we can get this underway, make some progress, break for the votes and return and conclude. I’m pleased to welcome those who are in attendance to the first in a series of public hearings we’re going to conduct to consider the funding requests of several of the dozens of Federal agencies within the jurisdiction of this new Appropriations Subcommittee on Finan- cial Services and General Government. I appreciate the willingness of those who are in attendance to ac- commodate their scheduling to the date, time, and location. I’m glad you’re all here. I welcome my colleagues who will join me, I’m sure, as the subcommittee hearing is underway. This morning, we will be hearing from two distinguished panels of witnesses. First, I’m pleased to welcome Chairman Reuben Jeffery of the Commodity Futures Trading Commission (CFTC). I believe Com- missioner Mike Dunn is here. I don’t know if Mr. Lukken is in at- tendance at this point but he may join us a little later. (1) 2 Our second panel will feature testimony from Steven Preston, Administrator of the Small Business Administration (SBA). To a casual administrator, these two agencies may seem quite dissimilar and oddly matched. Certainly their assigned missions and obliga- tions are distinctive yet both of these agencies occupy pivotal posi- tions at the forefront of stimulating economic growth in our coun- try. The Commodity Futures Trading Commission, created in 1974, is responsible for fostering the economic utility of futures markets by encouraging their competitiveness and efficiency, their integrity and protecting market participants against manipulation, abusive trade practices and fraud. That oversight and enforcement mission becomes tangible when you consider that the prices established by the futures market directly or indirectly affect the lives of all of us. Futures prices impact the prices we pay for necessities of life—our food, clothing, shelter, fuel for vehicles, and heat in our homes. Moreover, since the agency’s inception, there has been a remark- able transformation in this futures industry. Thirty years ago, the vast majority of trading occurred in the agricultural sector. Today, novel, highly complex financial contracts based on such things as foreign currency, interest rates, Treasury bonds, weather, real es- tate, economic derivatives, stock market indices—the list goes on. But that list has gone far beyond the original mission of agricul- tural contracts. Financial derivatives now comprise approximately 82 percent of all exchanged derivative activity, 8 percent for agriculture. Ever ex- panding complexities pose ever demanding challenges. I’m proud to have the two largest futures exchanges in the United States, the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CMBOT) headquartered in Illinois and one of CFTC’s three regional offices located there as well. These exchanges recently set an all-time total daily trading volume record of 24,915,515 con- tracts cleared through CME, CMBOT Clearing Agreement. The President’s budget proposes $116 million in funding for the CFTC for the next fiscal year. This sum represents a hike of 18 percent over the $98 million provided for fiscal year 2007 under our continuing resolution. It is 9 percent below the $127 million level the President sought in fiscal year 2007. Now the Small Business Administration will follow after the CFTC. It was established in 1953. We know its general mission to promote and protect the viability of America’s entrepreneurs, innovators, and small business owners. In my home State of Illi- nois, the contributions of the estimated 1,087,700 small businesses are critical to our economy, creating over 2.6 million jobs in my State. Our Nation depends on the SBA to ensure that capital as- sistance is available for those who need it the most. Like the CFTC, the SBA has experienced dramatic growth in the programs it offers. SBA’s programs now include financial and Fed- eral procurement, management assistance, specialized outreach to women, minorities, and Armed Forces veterans. For the Small Business Administration, the President seeks $464 million in new budget