House panel moves on capital raising, Dodd-Frank fixes

WASHINGTON (Reuters) - The U.S. House Financial Services Committee approved a series of bills on Thursday designed to spur capital formation and make fixes to the Dodd-Frank Wall Street overhaul law of 2010.

The four bills will now be sent to the full U.S. House of Representatives for a vote. Three of the four received wide bipartisan support, while the committee was sharply divided on the fourth bill.

The bill that appears to have the best chance of winning broad support in both the House and Senate is a plan to help small companies raise capital and go public by reducing regulatory burdens.

The measure, which was approved by the committee in a 54-1 vote, has support from the Senate and the White House, which recently called for a series of reforms to drive small business growth.

It would establish a new category of companies called emerging growth companies that have less than $1 billion in annual revenues at the time they register with the U.S. Securities and Exchange Commission.

These companies would be provided an “on-ramp” to encourage them to go public in which SEC regulations would be phased in over a five-year period or until the company can afford the costs associated with going public.

NYSE Euronext and Nasdaq OMX, which helped with the bill, both issued strong statements in support of the legislation on Thursday.


Two bills approved unanimously by the committee would make changes to the 2010 Dodd-Frank law.

One of the bills would reduce the scope of a controversial provision requiring banks to spin off some of their swaps trading into affiliates.

Another would bolster privacy protections for financial firms that provide data to the new Consumer Financial Protection Bureau.

The first bill takes aim at a measure that was tucked into the Dodd-Frank law by then-Senator Blanche Lincoln that was widely opposed by the financial industry and even some fellow Democrats.

The so-called Lincoln provision requires banks to spin off certain kinds of swap trading into affiliated entities, including uncleared credit-default swaps and energy and metal swaps, among others.

The bill approved by the committee on Thursday would limit the spinoff only to the riskiest of derivatives that are often cited as contributing to the financial crisis, including asset-backed and structured-finance securities swaps.

In addition, it seeks to put U.S. and foreign banks on equal footing by permitting the U.S. operations of foreign institutions to keep the same derivatives inside of the bank as U.S. institutions.

House Financial Services Chairman Spencer Bachus lauded the measure, saying that without it, the swap spinoff provision “could increase systemic risk into the financial system by forcing derivatives trading units away from” regulated firms into less-regulated affiliates.

The committee’s ranking Democrat Barney Frank, one of the namesakes of the Dodd-Frank law, agreed.

“I never myself never thought it made a great deal of sense,” said Frank.

Another bill would ensure that third parties cannot obtain privileged information that financial institutions will provide to the Consumer Financial Protection Bureau.


While Republicans and Democrats mostly agreed on the measures to spur capital formation and fix Dodd-Frank, they did not agree on a fourth bill targeting the SEC.

That bill, introduced by Republican Representative Scott Garrett, would direct the SEC to conduct a cost-benefit analysis for all of its rule-writing.

The rule comes as House Republicans continue to raise concerns about the quality of the SEC’s economic analysis of its rules.

Over the years, the agency has lost several court battles where financial industry and business groups sued over concerns about an adequate cost-benefit analysis.

In July, a U.S. appeals court overturned an SEC rule challenged by business groups that would have made it easier for shareholders to nominate directors to corporate boards, saying the agency did not conduct a proper economic analysis.

Democrats on the panel criticized the bill, saying the SEC already has legal requirements to conduct an economic review of its rules.

The bill was approved by the committee in a 30-26 vote.

Reporting By Sarah N. Lynch; editing by Andre Grenon