The Chair of the Securities and Exchange Commission (SEC), Gary Gensler, issued a stark warning to Washington lawmakers on Wednesday, emphasizing the potential consequences of an impending federal government shutdown. Gensler cautioned that such an event would lead to a drastic reduction in his agency’s staffing levels, rendering it unable to greenlight companies’ Wall Street debuts and severely impeding its capacity to respond to any market upheaval.
During a hearing, Democratic lawmakers pressed Gensler on the potential dysfunctionality that would ensue if the Republican-controlled House of Representatives failed to ratify spending legislation this week. Gensler articulated that the SEC would grapple with an astounding depletion of over 90% of its workforce due to unpaid furloughs, resulting in a “skeletal” team struggling to carry out essential functions in case of a government shutdown.
In the event of a government shutdown, businesses with intentions of going public or initiating offerings would face a stringent deadline, as the SEC would be incapacitated to review any filings beyond Friday. Among the notable initial public offerings (IPOs) on the horizon are the car-sharing platform Turo and energy storage firm Clarios International.
Gensler conceded that in the case of a significant disruption on Wall Street, “senior leadership would be there but again we’d be down to a skeletal staff.” While certain legal measures designed to protect life or property, including specific law enforcement procedures and litigation steps like temporary restraining orders, along with maintaining a channel for whistleblower complaints, would remain feasible, many investigations and responses to whistleblower complaints would likely grind to a halt due to severe staff reductions.
As the clock approached 1700 GMT, major Wall Street indices experienced significant declines, exacerbating losses incurred over recent days. These fluctuations stem from investor apprehensions regarding the trajectory of interest rates, with the specter of an imminent shutdown further exacerbating market uncertainty.
The potential consequences of a government shutdown extend beyond the SEC, affecting hundreds of thousands of federal workers who would be forced into furlough and causing a broad range of services to be suspended. To avert such a scenario, Congress must pass funding legislation that can be signed into law by Democratic President Joe Biden before midnight on Saturday (0400 GMT Sunday).
This critical juncture underscores the urgency for bipartisan collaboration to ensure the continued stability and functionality of essential regulatory bodies like the SEC, and the broader financial ecosystem they oversee. The ramifications of inaction in the face of this impending crisis would reverberate far and wide, impacting both Wall Street and Main Street alike.