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Treatment of Affiliate Transactions Under the Dodd-Frank Wall Street Reform and Consumer Protection Act

Floor Speech

By:
Date:
Location: Washington, DC

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Mr. CONAWAY. I thank the gentleman from New Jersey for yielding time.

Mr. Speaker, I rise today to express my strong support for H.R. 2779.

The interaffiliate swaps, those swaps occurring between entities within a single corporate structure, are an important tool for companies and to manage their risk.

As a member of the House Agriculture Committee and the chair of the General Farm Commodities and Risk Management Subcommittee, I want to commend Mr. Stivers and Ms. Fudge for putting together a commonsense bill that will offer our businesses and agriculture firms certainty about a small but important aspect of the overall Dodd-Frank rulemaking.

Centralizing a large organization's risk mitigation efforts can yield substantial economic benefits and reduce a firm's overall credit risk. In addition to creating operating savings through economies of scale, these companies can also reduce the number of external-facing transactions altogether.

By looking at a firm's entire risk portfolio, it's possible to find places where risks overlap and offset one another, reducing the need for entering the market. Fewer swaps mean less money tied up in margin, clearing, and execution and more money being spent on hiring Americans, buying supplies, and funding innovation.

Unfortunately, ambiguity in the Dodd-Frank law could undo this innovative risk management strategy. If interaffiliate swaps are treated the same as other swaps, end users could wind up posting margin for the same swap twice: once for the public trade and once for the internal trade that assigns the swap to the appropriate business unit. Needless to say, posting margin for the same transaction twice means that companies are likely to abandon the use of interaffiliate swaps altogether and, with it, the efficiencies that made the strategy attractive in the first place, thereby driving up their business costs and overall risks.

It's important to note that this legislation simply clarifies the intent of Congress. It does not repeal any of the market protections in Dodd-Frank. These internal swaps do not create risk and do not pose a systemic threat to financial markets. Instead, it protects an important tool American companies use to unlock the value of their unlimited resources.

I want to thank both Mr. Stivers and Ms. Fudge for bringing forward this legislation, and Chairman Lucas and Chairman Bachus for shepherding it through both committees in a timely fashion.

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