October 12, 2011 / 4:36 PM / 6 years ago

Republicans take aim at U.S. derivatives reforms

WASHINGTON (Reuters) - Republican lawmakers pushed ahead on Wednesday with bills to limit the U.S. futures regulator’s broad new authority over swaps, despite political divides that make passage unlikely.

House Republicans are trying to advance seven bills that could constrain the Commodity Futures Trading Commission from developing rules to regulate the $600 trillion over-the-counter derivatives market, as mandated by last year’s Dodd-Frank law to overhaul financial oversight.

They also want to make sure business costs do not dramatically rise for U.S. corporations that use derivatives to hedge everyday risks, such as commodity price swings and interest rate fluctuations.

Republicans on the House Agriculture Committee held a hearing on Wednesday to promote the raft of legislation, arguing that the weak economy makes it critical to allow businesses to effectively manage risk.

“With unemployment stuck at 9 percent, I‘m not willing to just stand by and keep my fingers crossed that the flaws in the proposed rules will be fixed,” said Frank Lucas, the committee’s Republican chairman.

He added that none of the seven bills propose dramatic changes to Dodd-Frank or undermine reform. “They are intended to restore the balance that I believe can exist between sound regulation and a healthy economy,” Lucas said.

But the top Democrat on the committee warned that the bills would only add confusion to efforts to reduce risk in financial markets.

Dodd-Frank gave the CFTC broad new authority over the murky swaps market.

The huge swaps exposures of troubled investment firms, such as Lehman Brothers and former mega-insurer AIG, greatly aggravated the 2007-2009 crisis that led to massive taxpayer bailouts of Wall Street.

“What we are doing here, to some extent, is adding to the uncertainty and not necessarily focusing on what the real problems are,” said Collin Peterson, the leading Democrat on the committee.

“The reality is that these bills aren’t going anywhere in the Senate. They just muddy the water.”

One bill would exempt commercial “end users” -- such as utilities, manufacturers and airlines -- from posting cash reserves on swaps, which supporters said would help clarify the Dodd-Frank law.

Another bill would shield swaps between affiliates within the same company from Dodd-Frank regulations.

Supporters argued that new CFTC requirements on so-called “inter-affiliate swaps” would increase costs for a company without decreasing risk.

Todd Thul, a risk manager at Cargill AgHorizons who supports the bill, said at the hearing that “the transactions are largely ‘bookkeeping’ in nature and do not create systemic risk.”

Democrats were skeptical. Peterson said the exemption would give “Wall Street guys a way to set up subsidiaries to get around these rules.”

Another bill would require the CFTC to conduct a more rigorous cost-benefit analysis before issuing a rule, which could slow down reforms the agency is trying to push out.

CFTC Chairman Gary Gensler has defended the agency’s rulemaking from Republican attacks.

He has tried to give comfort to corporations, by saying swap dealers would not be required to collect margin on swaps traded by end-users under a proposed CFTC rule set to be finalized in coming months.

Gensler, speaking on the sidelines of a Futures Industry Association conference in Chicago on Tuesday, also brushed off the congressional efforts to obstruct his agency’s rulewriting.

“I‘m aware of (the bills), but ... we have a law in front of us,” Gensler told reporters. “We’re moving to finalize rules consistent with that statute.”

Reporting by Alexandra Alper; Editing by Tim Dobbyn and Steve Orlofsky

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