House approves derivatives pushout bill amending Dodd-Frank

Fed supports change

Legislation to undo a Dodd-Frank Act measure requiring banks such as JPMorgan Chase & Co. and Citigroup Inc. to separate swaps trading from deposit-taking units was advanced by the U.S. House with bipartisan support.

The revision approved today in a 292-122 vote would upend the 2010 law’s pushout provision by allowing trades of almost all types of derivatives by lenders with access to deposit insurance and discount borrowing. A companion bill has failed to gain traction in the Democrat-controlled Senate, which would have to agree with the change for it to become law. The House bill received 70 votes from Democrats.

The White House issued a statement on Oct. 28 opposing the bill, saying legislation to amend the derivatives provisions of Dodd-Frank are “premature and could be disruptive and harmful to the implementation of these critical reforms.”

Lawmakers included the original measure as a way to limit risk-taking by banks that got federal bailouts during the 2008 credit crisis. The pushout provision was faulted by banks and also by regulators including Federal Reserve Chairman Ben S. Bernanke, who expressed concern that it could drive swaps trading to less-regulated entities.

The Fed earlier this year granted certain banks two-year extensions to comply with the requirement to move derivative trading from deposit-taking units. The central bank has said in letters to banks that they must determine whether to halt the swaps activity or move it to properly capitalized affiliates.

The House bill is H.R. 992.

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