The House Financial Services Committee has voted out a bill (HR 1838) that would repeal a provision in the Dodd-Frank Wall Street Reform Act requiring major banks to conduct their trading of derivatives through affiliates.

The legislation, which was sponsored by Rep. Nan Hayworth (R-NY), cleared the House panel by voice vote. It would repeal Section 716 of Dodd-Frank, which bars banks from being swaps brokers or dealers, or conducting proprietary trading in derivatives. The large Wall Street banks objected loudest to the insertion of this prohibition in Dodd-Frank.

The fate of the bill in the House and Senate is uncertain. But even if it should clear Congress, President Obama has vowed to veto any attempt to repeal Dodd-Frank, which he signed into law in July 2010 (see Daily GPI, July 22, 2010).

“During the debate over the Dodd-Frank Act, many experts, including Federal Reserve Chairman Ben Bernanke, former FDIC [Federal Deposit Insurance Corp.] Chairwoman Sheila Bair, and former Federal Reserve Chairman Paul Volcker, expressed concerns regarding Section 716,” Hayworth said.

“These experts warned that this Dodd-Frank provision actually increases risk by pushing swaps activities into entities that are not directly regulated by the FDIC and the Office of the Comptroller of the Currency. In addition to risk, significant additional costs are incurred capitalizing unnecessary new subsidiaries and affiliates; this money would be better spent on investment and job creation. HR 1838 will repeal the most onerous aspects of this provision while still prohibiting taxpayer bailouts,” she said.

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