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Public Statements

Swaps Regulatory Improvement Act

Floor Speech

By:
Date:
Location: Washington, DC

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I want to thank Mr. Scott for yielding the time.

Mr. Speaker, derivatives are complicated things. They are probably one of the more complicated things that we deal with in this Chamber, so it is worth describing in simple terms what H.R. 992 does.

It abides by principles that I think we can all agree make some sense, which are those things which contributed to the meltdown of 2008--the terrible mortgages, the derivatives that were based on those mortgages, the proprietary trading. Those things that contributed to the meltdown of 2008 should be either made unlawful or should be much more closely regulated than they were in the past; but those things that were not related in any way, shape, or form and that did not contribute to the meltdown of 2008 we should take a little lighter hand on.

H.R. 992 says that those derivatives--the currency derivatives, the commodity derivatives, the equity swaps, all of these complicated things that weren't anywhere close to the meltdown of Bear Stearns and Lehman Brothers and the challenges at Citibank and at JPMorgan Chase--will not be subject to a very aggressive measure saying that banks cannot trade in those derivatives.

Now, banks trade in derivatives because they support their clients and trade. I emphasize ``trade'' because one of their clients will borrow $100 million to build in Japan. That exposes him to yen risk. Maybe I don't want to take yen risk, and maybe the same guy who lent me the money can help me offload that risk. That is the idea.

H.R. 992 in no way allows for the risky derivatives--the collateralized bond obligations, all of those real estate derivatives--to come back into the banking environment, and it in no way permits, as the chairman has said a number of times, a bailout of banks because of derivatives.

Even though we have spent a lot of time on this today, it makes sense to spend a second on the history of this bill:

Section 716 requires the full push-out of derivatives. Regulators recognize that this is dangerous, and they are very vocal about it. Then-Ranking Member Barney Frank takes a suggestion from then-Representative Nan Hayworth to repeal section 716. The then-ranking member says, Let's not repeal it. Let's allow for the plain vanilla, common derivatives to remain in the banks and push out the dangerous ones. The Democratic staff helps draft this amendment, and I am personally asked to offer this amendment to Nan Hayworth's bill. She accepts it. A voice vote is passed, and the bill is passed in the last Congress. The minority views supported it. We all supported it. This year, exactly the same bill comes before us, and we have ginned up the press, and we have ginned up the bloggers. This has become a gift to Wall Street.

What is different? What is different from what passed happily and in a bipartisan fashion in the last Congress relative to this Congress--the London Whale? JPMorgan claims that they were hedging. Hedging is permitted whether we pass this or not. The London Whale has nothing to do with this.

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Mr. Speaker, what has changed is that we no longer do the hard work of finding finely balanced regulation like we do in water or in air. In financial services--in Dodd-Frank today--we have a morality play: either you repeal Dodd-Frank in its entirety because it is awful or you may not touch a word in the law.

Folks, we are about finding that balance. In as much as we go in front of each other and say that this is a giveaway to Wall Street, that doesn't help explain whether we should allow commodity swaps or not. What that does is impugn our motives as individuals, and it does not inform the debate. This is well-balanced regulation that passed overwhelming bipartisanly. Let's get away from this morality play and do our jobs by finding finely balanced regulation.

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