Swap regulators face Congressional push to curb Dodd-Frank

U.S. regulators face renewed pressure from congressional lawmakers to ease Dodd-Frank Act derivatives requirements amid mounting criticism from Wall Street and overseas officials that the rules overreach.

The House Financial Services Committee is scheduled to vote on nine measures that would allow more swaps to be traded in units of banks such as JPMorgan Chase & Co. and Citigroup Inc. that hold government-insured deposits. One measure would force U.S. regulators to determine the cost of new Basel III capital charges on banks’ swaps with corporate clients.

The measures, which would need approval from the House and Senate before heading to President Barack Obama, are part of an effort by big banks and their congressional supporters to amend or limit the regulatory overhaul the president signed into law less than three years ago. Dodd-Frank requires the Commodity Futures Trading Commission and Securities and Exchange Commission to create swap-market rules after largely unregulated trades helped fuel the 2008 credit crisis.

“In many cases, legislation is premature and aspects would be disruptive and harmful to the implementation of key reforms,” Treasury Secretary Jacob J. Lew wrote in a letter dated yesterday to Representative Jeb Hensarling, the Texas Republican who leads the House panel. “We should allow the regulators to complete their ongoing rulemakings, and then determine what changes, if any, might be necessary.”

Failed Efforts

Congressional efforts to change the law have so far failed to win passage as the CFTC and other regulators seek to finish writing regulations. Representative Jim Himes, a Connecticut Democrat who wrote legislation that would alter Dodd-Frank, said the bills probably won’t become law.

“If I were betting, I would say none of these bills will become law,” Himes said at a Bloomberg Government breakfast in Washington on April 25. “I don’t think there’s a lot of appetite in the Senate to get into which of these bills make sense and how are they balanced.”

One measure calls for altering a requirement that banks with access to deposit insurance and the Federal Reserve’s discount window move some derivatives trades to affiliates that have their own capital. Commodity, equity and structured swaps tied to some asset-backed securities would be allowed in such banks under the legislation.

Representative Maxine Waters, the top Democrat on the House Financial Services Committee, said last year that “legitimate concerns have been raised about whether pushing a significant portion of swaps out of banks is the best way to mitigate against future systemic risk.”

Americans for Financial Reform, a coalition including the AFL-CIO labor federation as well as other unions and consumer groups, has opposed changes to the so-called push-out rule.

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