Swaps Regulatory Improvement Act
Floor Speech
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Mr. HULTGREN. Mr. Speaker, I come to the floor today with tremendous pride, not because the bill we are debating is my own, but because we have the chance to help Main Street businesses and roll back one of the unintended consequences of Dodd-Frank.
From its first addition, the Lincoln amendment, also called the swaps push-out or spin-off provision, has been hotly debated. Section 716 of Dodd-Frank initially prohibited all swaps activities. However, the conference process yielded some measure of compromise by exempting foreign exchange and interest rate swaps back in.
By doing this, the conferees acknowledged that swaps are not inherently disruptive. In fact, swaps are a prudent and necessary activity for many businesses.
When oil prices spike or corn prices plummet, farmers and manufacturers rely on financial products like swaps to weather the uncertainty. Many of these businesses use banks as counterparties, where they have longstanding relationships with trusted institutions. Limiting banks' ability to serve their customers will cost these customers more as they are forced to find new, less stable partners.
Section 716, as it stands now, would force certain swaps out of Federal, prudential regulators' supervision and push them into affiliated entities that are not subject to the same oversight and regulation. This is why some of the loudest critics of the push-out provision have been Federal regulators, like the Federal Reserve Chairman Bernanke and Paul Volcker.
I know Ranking Member Waters and many members of the House from both sides of the aisle share these concerns. Moving swaps out of banks, while intended to reduce risk, may actually increase it.
This is one of the reasons I introduced H.R. 992. The Swaps Regulatory Improvement Act leaves the most opaque swaps spun-off to affiliates, the kind of swaps that exacerbated the 2008 crisis. Those are still forced out.
However, banks will be allowed to provide other types of swap contracts to their customers, such as equity, credit, and commodity swaps, which are very important to my home State, Illinois.
All of these activities are subject to the new swaps regime created by title VII, including reporting and registration requirements, clearing, margin, and business conduct standards. These activities would also be subject to a finalized Volcker Rule, meaning they would generally be for legitimate hedging purposes or client facing, not proprietary.
In the committee report from the last Congress, former Chairman Barney Frank, Ranking Member Waters, and other minority members of the committee noted that this bill ``addresses the valid criticisms of section 716 without weakening the financial reform law's important derivative safeguards or prohibitions on bank proprietary trading.''
This is every bit as true of the bill we are considering today as it was in the last Congress. H.R. 992 addresses the valid criticisms of section 716, ``concerns ..... about whether pushing ..... swaps out of banks is the best way to mitigate against future system failure,'' to quote Ranking Member Waters.
This bill strengthens regulatory oversight of these products. H.R. 992 does not weaken title VII's derivatives safeguards or the prohibition of bank proprietary trading.
H.R. 992 will keep costs lower for Main Street businesses that use swaps to hedge risks. H.R. 992 will help prevent derivatives market displacement and help promote U.S. competitiveness.
This bill addresses nonpartisan concerns with a bipartisan solution. I thank my Democratic colleagues for being willing to consider targeted fixes to Dodd-Frank. We can find common ground on financial regulation. We can work together for the American people, and we can fix Dodd-Frank without dismantling its important accomplishments.
So I ask my colleagues to support this bill. Talk to your hospitals, bankers, and farmers. They will tell you that swaps are an important, common business tool. Forcing higher costs on these transactions will only stifle job creation and economic growth.
H.R. 992 is a sound bill and strikes, in the words of Ranking Member Waters, the ``right balance.''
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