In a broadly positive hearing, the Senate Agriculture Committee appeared poised to approve the nomination for CFTC Chairman of Heath P. Tarbert, who currently serves as Assistant Secretary for International Markets at the Treasury Department. If confirmed, Tarbert would replace current CFTC Chairman J. Christopher Giancarlo, whose term is set to expire in mid-April.
Although the committee did not vote following the March 13 hearing, Committee Chairman Pat Roberts (R-Kan) signaled bipartisan support for the nomination.
“It is clear, at least to the Chairman, and I think the Ranking Member shares my view, that you are more than qualified to join the Administration in the role of Chairman of the CFTC,” said Chairman Roberts.
Tarbert was nominated in January 2019, following the Administration’s announcement of intention to nominate in December 2018.
Experience. Tarbert has extensive experience in both the public and private sectors. At the Treasury Department, he works to advance U.S. interests in multilateral organizations on financial stability and regulatory issues, negotiate trade agreements, and support the Committee on Foreign Investment in the United States (CFIUS), among other responsibilities. He has worked in all three branches of government, having served as Special Counsel to the Senate Banking Committee, Associate Counsel to President George W. Bush, and law clerk to Supreme Court Justice Clarence Thomas. Prior to joining Treasury, he was a partner in the global financial regulatory practice at the international law firm Allen & Overy.
Tarbert received his JD and SJD from the University of Pennsylvania, and also earned a DPhil from Oxford University, where he was a Thouron Scholar.
Positions. In Tarbert’s view, the Dodd-Frank Title VII derivatives reforms are important and need to be completed. In protecting the health of the U.S. derivatives markets, he stressed the need to strike the right balance between allowing markets to flourish and innovate, while protecting customers from harm and protecting against threats like cyberattacks.
In addition to prepared testimony, Tarbert responded confidently to scattershot questions over the nearly hour and a half hearing, addressing the following topics:
- Cross-border regulation. In response to Robert’s statement that he and Ranking Member Debbie Stabenow (D-Mich) are concerned about E.U. regulation of U.S. derivatives clearinghouses, Tarbert said he “agrees wholeheartedly” that U.S. clearinghouses need to be regulated exclusively by U.S. regulators.
- Position limits. Roberts said he hopes the CFTC will move on a final position limits rule later this year. Tarbert agreed that the rule needs to be finalized, and said that important considerations include exemptions for bona fide hedgers, accurate measures of deliverable supply, and parity between the three major wheat contracts.
- CFTC enforcement. In response to a question from Stabenow, Tarbert said he would keep the CFTC’s Enforcement Division the largest agency division, and would invest resources as needed. His priorities would include protecting the markets as well as customers, holding individuals accountable as well as institutions, and coordinating with other regulators and law enforcement. Responding to Sen. Sherrod Brown’s (D-Ohio) concern that the CFTC has grown too lenient in enforcing violations, Tarbert said he does not believe in leniency, but that self-reporting can be useful, assuming it’s followed up with systematic self-correction.
- Cybersecurity. Tarbert assured Stabenow that he would ensure the CFTC has access to the relevant information it needs, including from Treasury’s Office for Critical Infrastructure Protection, which is led by a former general from U.S. Cyber Command and NSA and looks at specific vulnerabilities in the U.S. financial system. He observed that the area of greatest concern is “where systemic risk maps onto cyber risk.” He committed to looking at a bipartisan bill by Sen. Amy Klobuchar (D-Minn) and Sen. John Thune (R-SD) that would facilitate coordination between the public and private sectors.
- Market irregularities. Tarbert said that in general, price convergence in the derivatives markets is critically important, otherwise market participants cannot use contracts to hedge. Responding to questions from Roberts and Klobuchar about irregularities in the hard red winter wheat and cattle markets, he said he would look into this issue more.
- Systemic risk. Responding to concerns expressed by Brown and Sen. Tina Smith (D-Minn) about systemic risk, including from a substantial concentration of swaps dealing among five large banks, Tarbert said that it is crucial that initial and variation margin be imposed on these financial institutions. Prior to the financial crisis, margin was not routinely collected and it had a daisy chain effect, as the failure of one institution led to the failure of another, and so on. Continuing to move swaps trading onto transparent markets is another important step, he said. In addition, as risk continues to be concentrated in clearinghouses, these entities must be closely supervised and have recovery and resolution plans.
- CFTC resources. Brown as well as Sen. Kristen Gillibrand (D-NY) expressed frustration with the CFTC’s chronically low funding and pressed Tarbert to commit to seeking self-funding for the CFTC. Tarbert responded that he would provide any technical assistance requested on this score, but that ultimately this is a question for elected officials.
- Automated trading. Gillibrand expressed worry about the effects of unregulated automated trading and asked if Tarbert would reopen the CFTC’s Regulation Automated Trading, for which progress seems to have stopped. Tarbert said he would want to get the discussion going again, and that the CFTC needs to continue its analytical studies using current data. In addition, exchanges and clearinghouses need to put in relevant risk management, possibly including circuit breakers.
- Volcker Rule. Sen. Debra Fischer (R-Neb) said she is concerned that community banks did not create the financial crisis, yet are being punished for it, and that she has heard that there may be further delays in the Volcker rule. Tarbert agreed that the rule should be narrowly tailored regarding community banks or that they should be exempted altogether. He promised he would work with other agencies to ensure that end users like farmers and ranchers would have access to commodities products, and that he would make every effort to ensure that the rule is finalized in a timely way so that end users can have certainty.
Support. Chairman Giancarlo has expressed support for Tarbert.
Roberts indicated that he hopes the nomination will move swiftly.
“Your testimony today provides a solid basis to report you favorably out of committee,” Roberts told Tarbert. “Per our rules, we can’t do so today—wish we could—but we will endeavor to do so in the very near future.”
Roberts indicated that he hopes the nomination will move swiftly.
“Your testimony today provides a solid basis to report you favorably out of committee,” Roberts told Tarbert. “Per our rules, we can’t do so today—wish we could—but we will endeavor to do so in the very near future.”