Chairman Jeb Hensarling

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Floor Vote Prep | H.R. 992, the Swaps Regulatory Improvement Act
Posted by on October 27, 2013

H.R. 992, the Swaps Regulatory Improvement Act, was introduced by Rep. Randy Hultgren and is expected on the House floor this week. Here's what you need to know: 

Problem:

Manufacturers, farmers, ranchers and Main Street businesses are concerned that complicated provisions of the Dodd-Frank Act related to derivatives swaps will inhibit their ability to manage risk and protect themselves from extreme fluctuations in the price of fuel, fertilizer and commodities. This ultimately would increase costs for consumers of their products and hurt America’s economy.  

Example: 

While Dodd-Frank was sold to the public as “Wall Street reform,” its provisions related to derivatives have a much wider reach and a much broader impact. For example: 

  • Manufacturers rely on derivatives to hedge against fluctuating prices in the raw materials that go into production; 
  • Hospitals trade them to hedge against rising interest rates when financing big investments like more beds or new technology; and 
  • Farmers use derivatives to lock in the prices of their crops for the coming season.

Under Section 716 of Dodd-Frank, federally insured banks are not permitted to conduct certain swaps trading. This compels banks to “push out” these trades to separate non-bank affiliates, which are less-regulated and more highly leveraged.  

Bottom Line: 

The overwhelming majority of derivatives were not the cause of the financial crisis.  Swaps based on currencies, interest rates, agricultural products and equities – the same swaps that are the subject of this legislation – performed as expected.  

Solution:

The bipartisan H.R. 992 – which the Financial Services Committee approved 53-6 (.pdf) on May 7, 2013 and the House Agriculture Committee approved 31-14 on March 20, 2013 – amends Section 716 to ensure that federally insured financial institutions can continue to provide risk-mitigation efforts for clients like farmers and manufacturers that use swaps to insure against price fluctuations.  Furthermore, H.R. 992 ensures these swaps will take place within financial institutions that are closely monitored by federal regulators, rather than in non-bank affiliates that are not watched as closely by regulators. 

Comments
The opinions expressed below are those of their respective authors and do not necessarily represent those of this office.
  • Fall Sapphire commented on 10/29/2013
    Then you need to provide some for instances. At the end of the day, we the voters don't trust your insights anymore. So bring some specific examples that show ramifications-- bring me folk other than multi- millionaires and corporate types. Show me how it affect say, a mid- level staffer in pharma, a nurse, a farmer not corporate Farmer with genetically altered crops or polluting the earth with chemicals or exploiting undocumented workers.
  • Patrick Turney commented on 10/29/2013
    The talking point above, "Hospitals trade them to hedge against rising interest rates when financing big investments like more beds or new technology" makes no sense in relation to HR992, given that Section 716 of Dodd-Frank ALREADY exempts interest-rate swaps. This is an irrelevant talking point, ostensibly one made to detract from the real story, which is that this is a bill written by Citigroup (70 out of 85 lines, as reported by the NY Times). This bill puts taxpayers at risk because derivatives are senior during bankruptcy, and if the Deposit Insurance Fund (DIF) is exhausted, the Treasury would extend a 5 year emergency loan during a resolution process, effectively a bailout. Even if OLA were not required, this amounts to a bailout by the community banks of the largest banks, since community banks also pay into the DIF. There is no reason to allow risky derivatives such as uncleared CDS into the insured depository. I urge you to stop propping up Citigroup, and start truly representing the American public.
  • Scott Lloyd commented on 10/29/2013
    First of all, hospitals will see a huge serge in business in the years coming, so give me a break. Manufacturers and farmers can deal with all this crap just like they did before Glass–Steagall was repealed, and either secure federally insured loans or take their chances on the oh so bloated commodities market as we see it today.
  • Matt V commented on 10/29/2013
    Ha what a joke this bill is. Typical corrupt Gov't wanting the public to eat the bad bets of Wall Street. Anybody who knows anything can easily see looking back, that it was in fact the derivatives mess that caused housing prices to collapse. Institutions sold high positions in housing to cover the margin bets on derivatives. Yet the media, elected officials & wall street want the public to believe it was poor people taking out to big of housing loans and living beyond their means. How about some responsibility of the lender?
  • Kathy Weber commented on 10/29/2013
    No, no, no. We will not tolerate this Citigroup sham. Have you leared NOTHING? Do NOT pass this.
  • Anne Wick commented on 10/29/2013
    I am strongly opposed to H.R. 992 and it should be stopped in it's tracks. I, along with most of my fellow Americans are opposed to any federal assistance for derivatives. As implied in the bottom line, if the majority of derivatives performed as expected, there is no need for them to come under the purview of the financial institutions. Also, from my casual observations, federal regulators seem to be more concerned with appeasing the financial institutions than regulating them. Bottom line - I am strongly opposed to H.R. 992.
  • Curtis Maddox commented on 10/29/2013
    Derivative traders that work both ends of the market drive the prices in today's market. This is unfair competition not only for the markets but for the consumers who have to use the products that have been artificially traded many times before the products are delivered to the consumer. When the traders are insuring themselves against losses and the consumer can't insure themselves against higher prices the markets will struggle to find consumers to pay inflated prices and implode. We have seen this. We have lived this. Don't vote for H.R. 992. Speculators must be reigned in. Please strengthen regulations to safeguard consumers and the free consumer market to grow the American economy. My vote depends on your support.
  • Linda Phillips commented on 10/30/2013
    I strongly oppose this bill. We've witnessed banks continue their scams and schemes in the commodities markets in the aftermath of the financial crisis. It's willfully ignorant (or worse, corrupt!) to pretend these schemes are harmless so long as they're no longer hooked to mortgages. It's long past time that Congress and the White House reign in these robber baron Big Banks and any of you that would vote for another bill like this one - authored by Citibank? - is shameful, absolutely shameful.
  • Ken Morris commented on 10/30/2013
    How can you preach the principles of the "free market", when this legislation so obviously manipulates and modifies the market in the name of "risk mitigation"? Are you for the free market or not?
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