WASHINGTON, March 20, 2013 – The House Agriculture Committee today approved several reforms to the nation’s major financial regulatory overhaul bill passed in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Right now, some of the proposed regulations could make using derivatives so expensive that businesses will be forced to stop using them to hedge against risks,” said Chairman Frank Lucas, R-Okla. “That ultimately results in higher costs for consumers and diminished stability in the marketplace. We have an opportunity to correct these issues with legislative fixes.”
While the bills are now reported to the full House, Ranking Member Collin Peterson, D-Minn., insisted that some of the proposals have no chance in the Senate, “given that Senate Republicans would rather eliminate Dodd-Frank altogether than make it more workable.”
The bills are the culmination of the committee's oversight efforts of the Commodity Futures Trading Commission (CFTC) as it writes rules for Dodd-Frank. All but one of the bills advanced on a voice vote. The committee approved H.R. 992, the Swaps Regulatory Improvement Act, by a vote of 31-14. The bill is sponsored by Reps. Jim Himes, D-Conn., Sean Patrick Maloney, D-N.Y., Randy Hultgren, R-Ill., and Richard Hudson, R-N.C.
Peterson strongly opposed the Swaps Regulatory Improvement Act, which he said would put more taxpayer dollars at risk. The bill amends provisions in Section 716 of the Dodd-Frank Act relating to federally-backed subsidiaries for swaps entities.
As described by Practical Law Company, Section 716 is referred to as the Pushout Rule, but is primarily a ban on federal assistance to certain banking institutions. Section 716 enables certain banks to remain eligible for federal assistance if they push derivatives activities out of their federally insured subsidiaries into separately capitalized affiliates. H.R. 992 would allow banks to deal derivatives out of their federally insured subsidiary.
According to Himes, a member of the House Financial Services Committee who co-introduced the bill on March 6, banning this activity in federally-insured institutions would cause regulators to lose some oversight. H.R. 922’s sponsors say they want these swaps to take place within institutions that are more closely monitored by federal regulators.
The bill will also “ensure that federally insured financial institutions can continue to conduct risk-mitigation efforts for clients like farmers and manufacturers that use swaps to insure against price fluctuations,” according to a Himes statement.
However, Peterson supports the provisions of Section 716 that are intended to prevent future “bail outs.” During the hearing, he said “the worst votes I ever made in this place” were for the Commodity Futures Modernization Act of 2000, which “exempted all of these swaps from any regulation or any margins” and for eliminating the Glass-Steagall Act.
Peterson told his colleagues, “You're putting taxpayers on the hook,” in voting for the legislation to amend Section 716. He added that when Congress passed the Modernization Act, the market had $80 billion in swaps. “We gave them legal certainty, we eliminated the regulation requirements, and it went to $700 trillion and it blew up on us,” he told his colleagues. “So just be careful: You can vote any way you want, but this could come back and haunt you.”
Rep. David Scott, D-Ga., supported the legislation along with four other Democrats on the committee. Scott said Section 716 “could actually increase risk, increase costs and complexity for the customers of the banks,” if not reformed. He added that the unintended consequences of the section were “never given proper consideration in the House during the initial developments of Dodd-Frank.”
While H.R. 922 ultimately passed with a 31-14 vote, the House Agriculture Committee reported the remaining six bills favorably to the House with unanimous voice votes.
The approved bills are listed here.
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