None of the legislation to amend Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act being considered by the House Agriculture Committee “proposes dramatic changes to Dodd-Frank,” according to committee Chairman Frank Lucas (R-OK).
Instead the four bills and three discussion drafts, which were the focus of an Agriculture Committee hearing in Washington, DC, on Wednesday, “are aimed at ensuring that the regulators don’t implement rules that conflict with or are contrary to what Congress intended,” Lucas said. “They do not undermine reform and they are not efforts to repeal Dodd-Frank. They are intended to restore the balance that I believe can exist between sound regulation and a healthy economy.”
But some committee members doubt that any of the bills will ever become law.
“I understand that the House needs to move, but the reality is that these bills are not going anyplace in the Senate,” said Collin Peterson (D-MN). “I think they just muddy the water.”
The House measures would require the Commodity Futures Trading Commission (CFTC) to conduct better cost-benefit analyses of its regulations; clarify the definition of swap dealer; and provide a user exemption of margin requirements in certain instances (see Daily GPI, Oct. 12). The committee is also reviewing three discussion draft bills to amend Dodd-Frank, which have not yet been introduced — the Small Business Credit Availability Act, the Pension Plan Risk Reduction Act, and a proposal to clarify the definition of swap dealer to end confusion with major swap participants.
A proper definition of swap dealer “is crucial to ensure that burdensome requirements…are not improperly forced upon nonfinancial end-users,” according to Brenda Boultwood, chief risk officer for Constellation Energy.
“The CFTC’s proposed definition includes exemptions that are too narrow and would lead energy firms and other end-users to be unintentionally caught up in a swap dealer definition and rules that would require onerous margin clearing, real-time reporting and capital requirements,” Boultwood told the committee.
Most of the bills and draft bills being considered by the Agriculture Committee “would carve a significant loophole in the new derivatives protections created by the Dodd-Frank Act,” according to Americans for Financial Reform (AFR). For example, HR 2682, which says margin requirements will not apply to a swap in which one of the counterparties is not a financial entity, “would have the effect of exempting the trading desks of big commodity and energy companies — even when they are trading on a purely speculative basis — from any requirement to put up collateral to back up their derivatives bets. The next Enron would be exempted from key derivatives safeguards under this law,” AFR said.
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