Dodd-Frank Swaps Reform Undertaken by Bipartisan Group

U.S. House and Senate lawmakers introduced legislation that would facilitate more swaps trading to be conducted at banks that have federal insurance by repealing a part of the Dodd-Frank Act.

Bloomberg reports that the bipartisan measures would alter the law’s 2010 requirement that banks with access to deposit insurance and the Federal Reserve’s discount window, would move some derivatives trades to separate affiliates that have their own capital.

Approval By Congress

This legislation would need approval by Congress, then would need President Barack Obama’s signature, as the legislation is part of a series of congressional efforts to amend or limit Dodd-Frank’s derivatives regulations.

Representative Jim Himes, a sponsor of the bill and a Democrat from Connecticut, told Bloomberg: “People who object are going to say this allows banks to take huge risks. Not true,” adding that “It’s going to allow them to maintain inventory of the swaps that their customers need to buy from them; just the same way when you go to buy a car from a car dealer.”

The new legislation was introduced by Senators Kay Hagan, a North Carolina Democrat, Pat Toomey, A Pennsylvania Republican, Mark Warner, a Virginia Democrat, and Mike Johanns, a Nebraska Republican.

Efforts to change the law have failed to win in Congress, while the CFTC and other regulators seek to finish writing regulations. The Securities Industry and Financial Markets Association (SIFMA) released a statement from their acting president and CEO, supporting the new legislation:

This action is a bipartisan, bi-cameral recognition that Section 716 was an ill conceived provision, one that elicited strong reservations from multiple federal prudential regulators when originally adopted and still today. Adoption of the Hultgren-Himes-Hagan-Toomey legislation will forestall a misguided action that would force swaps to migrate to other entities that are not subject to prudential regulation, and could likely increase systemic risk instead of reducing it. We urge the House and Senate to address, on a bi-partisan basis, the need for amending this section of Dodd-Frank and pass this legislation.

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