The world’s biggest banks would win curbs on U.S. regulators’ power to restrict overseas derivatives trades under legislation proposed by U.S. lawmakers.
The House Agriculture Committee will meet Thursday to consider a bill that includes a provision forcing the Commodity Futures Trading Commission to redo its policy on cross-border trades in the $700 trillion global swaps market. The measure would curtail the agency’s ability to impose Dodd-Frank Act trading rules on deals conducted by employees in the U.S. but held in overseas divisions.
The provision backed by Representative K. Michael Conaway, the Texas Republican who leads the committee, is designed to reverse a CFTC policy that drew opposition from overseas regulators as well as groups representing Goldman Sachs Group Inc., JPMorgan Chase & Co. and Deutsche Bank AG. The lobby groups unsuccessfully sued to overturn the regulation.
The legislation would make it easier for Wall Street to escape tough rules designed to make trading more competitive and transparent, Marcus Stanley, policy director for Americans for Financial Reform, said in an interview.
“It could undo various parts of the Dodd-Frank Act by permitting American banks to transact in locations where swaps are not as well-regulated,” Stanley said.
The legislation is likely to face opposition from Democrats who have been reluctant to support efforts to alter Dodd-Frank. Representative Collin Peterson of Minnesota, the top Democrat on the agriculture panel, said on Wednesday that he will vote against the legislation.
“Because of the inclusion of unnecessary and extraneous items I will oppose the bill,” Peterson said.
The legislation to reauthorize the CFTC’s power, meant to be updated every five years, includes several provisions revising Dodd-Frank while also limiting the impact of derivatives rules for commercial and agricultural companies that use swaps to hedge risk.
Republicans and industry lobbyists have criticized some of the CFTC provisions put in place since Dodd-Frank was enacted in 2010, saying that they unnecessarily restrict derivatives users that weren’t involved in the 2008 financial crisis.
“We strongly believe that the CFTC’s post Dodd-Frank trend toward very prescriptive changes to futures market regulation will hinder rather than improve our economy’s ability to manage commodity market risks,” Doug Christie, president of the cotton division of Cargill Inc., said in March testimony at an agriculture committee hearing.
The House bill also seeks to free agricultural and energy companies from speculation limits for trades they do to hedge business risks.