The House Agriculture Committee by unanimous voice vote Wednesday passed an over-the-counter derivatives regulation bill that is slightly tougher than one approved by the House Financial Services Committee last week but does not contain a provision requiring all derivatives contracts involving big banks to go through clearinghouses.
House Agriculture Chairman Collin Peterson said after the markup that he would prefer that the House vote separately on the derivatives bill as soon as possible rather than have it merged into a larger bill strengthening regulation of the financial services industry. "The public wants us to move on this," Peterson said.
Technically, the Agriculture Committee amended the Finances Services bill with a substitute Peterson measure. House Financial Services Chairman Barney Frank would not object to a separate floor vote on the derivatives bill, Peterson said. But Peterson added that he thinks the House leadership and the Obama administration expect to put all the financial services bills in one package.
The bipartisan vote contrasted sharply with the Financial Services Committee markup in which only one Republican voted for the bill. House Agriculture ranking member Frank Lucas, who also sits on Financial Services and voted against the bill on that committee, said he supported Peterson because he abandoned plans to require almost all derivatives to be cleared. Lucas said it is "quite rational" to think that the derivatives bill could get a strong majority vote on the House floor but that the minority would reserve its right to dissent if the bill is merged with others and changed.
The bill attempts to address problems that have occurred after over-the-counter derivatives were exempted from regulation in the 2000 Commodity Futures Modernization Act. During the 2008 financial crisis, the American International Group could not fulfill the derivatives contracts and required a $180 billion government bailout.
The bill requires registration and transparency in the derivatives market and requires that the institutions issuing the derivatives back them with capital. Peterson, whose committee has jurisdiction over the futures industry, generally took a tougher approach than Frank, whose committee oversees the banking and securities industry.
In an effort to deter excessive speculation in oil and wheat, Peterson added provisions allowing the Commodity Futures Trading Commission to impose limits on the size of positions that institutions can take in physically deliverable commodities.
Agriculture Committee aides said the bill’s many technical provisions tighten up the Frank bill. Last week Frank toughened his bill, but he did not include a proposal that Peterson had made at the request of the Obama administration to require that all standardized derivatives contracts involving "Tier 1" banks such as Goldman Sachs and J.P.Morgan Chase go through a clearinghouse.
Peterson said Wednesday he had decided to leave that out because many manufacturers and airlines said it would make their use of derivatives prohibitively expensive.
Commodity Futures Trading Commission Chairman Gary Gensler said Wednesday in a speech in Chicago that swaps should be taken off the books of large, complex financial institutions in order to reduce systemic risk. But Peterson said that he does not consider the issue to come under the jurisdiction of his committee and questioned whether government can address systemic risk. "I am not a big believer in doing something about systemic risk," he said.
Gensler argued that end users would benefit from all standardized over-the-counter trades going through exchanges or trade-execution houses because it would reveal pricing information, but Peterson said the end users did not believe they would save money.
Peterson noted that the big banks would still have to back up the derivatives with capital and said he believes that his bill addresses Gensler’s concerns. Gensler could not be reached for comment by presstime.
The Consumer Federation of America said in a news release Wednesday that leaving out the clearinghouse mandate would "fatally weaken the bill."
"While Chairman Peterson deserves credit for trying to pass a stronger bill, apparently there ‘just aren’t the votes’ in Congress to fix the problems that brought the global economy to the brink of collapse," CFA Director of Investor Protection Barbara Roper said in the release.