WASHINGTON (CNNMoney.com) -- The head of the Securities and Exchange Commission warned Congress on Thursday that proposed cuts to the regulator's budget would hurt its ability to do its job watching markets.
Mary Schapiro and her staff were slated to spend all day on Capitol Hill to help the agency get the funding it says it needs to prevent things such as the Bernard Madoff investor fraud and the May 6 flash crash, when the Dow tumbled by nearly 1,000 points and then recovered most of the loss.
She also will talk about the need for resources to carry out the new Dodd-Frank laws cracking down on Wall Street firms that caused the financial crisis.
"A vigorous examination program not only reduces the opportunities for wrongdoing and fraud, but also provides early warning about emerging trends and potential weaknesses in compliance programs," Schapiro said in testimony before the Senate Banking Committee.
Schapiro is scheduled to appear before a House Oversight subcommittee later in the day to defend against criticisms of her management.
Separately, Schapiro's staff got pummeled from both parties at a House Financial Services subcommittee hearing about the agency's funding.
"How much does whitewash cost?" California Democrat Rep. Brad Sherman asked SEC staffers, referring to the consequences of the agency's handling of the Madoff Ponzi scheme. "It's been two years. Nobody's been fired. Nobody's to blame. Nobody's accountable."
The SEC is in the midst of a major makeover, as prescribed by the Dodd-Frank Act, hiring hundreds of new staffers, including new investigators and attorneys to serve as "more cops on the beat."
However, that makeover has been slowed, as the agency is currently operating at 2010 levels due to Congress' inability to pass a budget covering 2011. President Obama has proposed a dramatic increase in funding for the SEC in 2012.
The funding battle worsened for the SEC when Republicans took control of the House and gained seats in the Senate. Republicans made no secret about wanting to slow down or undo parts of the Dodd-Frank Act, by choking funding to agencies charged with enforcing the new laws.
Sen. Mike Crapo, an Idaho Republican, echoed this idea, saying he'd like see the Dodd-Frank Act implementation slowed down. He also said he wasn't in favor of increasing any agency's budget, even if the agency works like the SEC by collecting revenue from fees on Wall Street firms and other companies -- and not taxpayer dollars.
"Whether it's the income tax or fees on transactions, we should pay very close attention that we don't drive up the cost of government," Crapo said.
The House Republican-passed budget covering the rest of 2011 would slash SEC funding to 2008 levels.
If that budget became the reality for the SEC, "we'd certainly be in a position of laying off significant numbers of employees and halting any technology development," Schapiro said. "We'd not be able to operationalize the Dodd-Frank rules."
Schapiro said that the May 6 flash crash was caused in part by the SEC's "lack of technology," and that "our budget really recognizes the shortcomings," and would beef up technology to prevent future flash crashes.
Schapiro later faced House Republicans on Thursday, answering questions about why she allowed the SEC'schief general counsel to work on the Madoff case, even though his mother had been a Madoff investor and her estate, eventually, was sued to get back investments.
#AskSeaWorld campaign aims to set the record straight on the company's animal care, but is fueling critics on Twitter. More
Most funded Kickstarter project Pebble Time raised more than $20.3 million. More
Meet Luna, the tech-enabled mattress cover that just raised over $1.1 million on Indiegogo. More