Senators spar with CFTC over Dodd-Frank implementation
By Sara Wyant
© Copyright Agri-Pulse Communications, Inc.
WASHINGTON, DC, June 15 - Nearly one year after the President Obama signed the Dodd-Frank Act into law, Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler tried to convince members of the Senate Agriculture Committee why the Act's derivative reforms are necessary after the 2008 financial system and how his staff is diligently working to implement the new provisions. But several Senators attending the hearing and some of the witnesses expressed skepticism and concerns about the scope and implementation of the new regulations.
“How did a wheat farmer at a coop in Kansas manage to get tangled up in all of this,” asked Nebraska Senator Mike Johanns. “It's ludicrous.”
Gensler testified just one day after the CFTC decided to delay a number of reforms in Title 7 of the Dodd-Frank law until as late as December 31. The news was welcomed by banks, agribusinesses and others who feared the rush to regulate would create additional problems with their use of derivatives, but criticized by many Democrats for missing what they view as important new rules for overseeing derivatives valued at over $300 trillion in the U.S.
Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich, welcomed the delay.
“The additional six months is very important. This will provide some addtional short term certainty while they are putting in place all of the rules and the way they will phase them in,” she told Agri-Pulse. “This also continues to give us the opportunity to do oversight and make clear on farmer co-ops, for instance, that they will be able to continue to operate and not get caught up in areas not intended.”
But Stabenow added that Dodd-Frank reforms offer a lot of benefits from the increases in transparency.
“Markets are so volatile. We need to do everything we can on our part to create some regulatory certainty.”
National Council of Farmer Cooperatives' (NCFC) President and CEO Chuck Conner shared his concerns about how the CFTC will define a number of terms in the Act, including swaps dealers. Regulations could sweep farmer cooperatives up in to regulations that Congress intended to apply only to very large systemically important financial institutions, he noted.
“More producers are depending on their cooperatives to provide them with these tools to manage price risk, and to assist them in locking in margins,” said Conner. He shared the example of one co-op that experienced a $100 million margin call in just one day.
“Imposing [these regulations] on co-ops would mean increased financial requirements and other regulatory costs. This, in turn, could make offering these services to farmer-members uneconomical,” Conner concluded. “Such action would result in the unintended consequence of increasing risk in the agricultural sector. We do not believe this was Congress's intention and would urge this committee to reiterate that with the CFTC.”
Ranking Minority Member Pat Roberts was not convinced that Gensler's testimony, and the hearing in general, provided any additional clarity for co-ops and agribusiness institutions concerned about the new regulations. He emphasized that “this committee has to continue our oversight responsbilities.”
“We are in another state of swap pergatory. Although we have been advised not to worry,” Roberts added.
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