U.S. Senator Saxby Chambliss (R-Ga.), Ranking Republican Member of the Senate Agriculture Committee, today made the following remarks during his opening statement at a committee business meeting to markup the Wall Street Transparency and Accountability Act:
"Chairman Lincoln, thank you for holding this markup today. This is yet another example of your dedication to carrying out your responsibilities as chairman of this committee. Since you became chairman - just over six months ago - we have held hearings on many topics and this will be your second markup in less than a month. People sometimes forget that this committee deals with much more than just mainstream agricultural issues. This committee is responsible for oversight of the Commodity Futures Trading Commission, derivatives regulation is an area that we constantly monitor. As the Senate continues to work on financial regulation reform, we all know that appropriate regulation of derivatives, and specifically the swaps market, is a critical component of such legislation.
"I have always enjoyed serving on the Agriculture Committee because of our long tradition of working across party lines to advance bipartisan bills that can be defended on the floor of the Senate from both sides of the aisle. Our committee has historically had a high success rate of seeing our bills enacted into law while other committees report many bills only to watch them fall apart or stall for months on the floor of the Senate due to partisan politics. This committee has historically not fallen subject to partisan influence. The most recent example is the 2008 farm bill - we reported a bill and we moved it through the Senate despite a veto threat from the White House, and a Republican president I might add. We then conferenced the bill without any support from the White House and overrode their veto, not once, but twice. Again, I point out that very few other committees are able to do this. Why? Because members of this committee check their partisan politics at the door in an effort to reach consensus so that both Republicans and Democrats can support the bill on the floor.
"Less than two weeks ago we had worked out a good bipartisan product. I wish that the other members of the committee, both Republicans and Democrats, would have had the opportunity to help further refine that agreement.
"It required clearing of swaps by those entities contributing to systemic risk - a substantial change from current law; provided the Securities Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) with the authority to establish capital and margin requirements - an authority they currently do not have; allowed the CFTC to impose aggregate position limits - another new authority; and provided the much needed transparency that has been absent from the swaps market. This represents a 180-degree shift from current law.
"Just as important as the new regulation included in the compromise, was the recognition that we needed to preserve the ability of businesses to legitimately hedge risk without additional costs, and it did this for all businesses, whether they are manufacturers, processors, or even financial in nature. When I say businesses that are financial in nature, I am not referring to large dealers like Bank of America, Goldman Sachs or JP Morgan - they would not get an exemption from clearing. I am talking about entities like those in each of our states that actually use derivatives to hedge their interest rate risk. For instance, Farm Credit System institutions - despite attempts to ensure that they are not subjected to all of these new mandates, I understand that the chairman's mark may have in fact not exempted them. This is exactly what I fear - unintended consequences resulting from applying complicated regulations too broadly. If we subject these financial institutions to the increased costs of clearing their interest rate swaps, they will likely be forced to raise interest rates they offer to their customers - our constituents and farmers - is that really the objective we are trying to achieve?
"Our bipartisan draft also sought to send a message to the CFTC that entities like Koch Industries who are hedging their risk and also engaged in developing products for their customers should not inadvertently be captured in a new regulatory category designed to apply to big financial dealers: Koch Industries and Goldman Sachs should not be regulated in the same way. Treating these entities like dealers may force them to stop offering these products to their customers in which case their customers will have no other options but to seek such products from the large dealers, like Goldman Sachs. This essentially drives all of the business to those that are most systemically risky. These are just two of the many unintended consequences that results from overreaching regulations on the businesses and financial entities that had nothing to do with the meltdown of our financial system.
"As I said earlier, the elements of the agreement that my staff had reached with Chairman Lincoln's staff represented a 180-degree shift for swaps regulation - going from essentially unregulated to completely regulated. The handful of remaining issues, that now stand between us and a bipartisan bill, do not constitute some stark choice between Democrats supporting regulation while Republicans do not; we probably generally agree on 90 percent of the specifics. However, the remaining 10 percent of the issues involved here - namely the extent of the end-user exemption; and whether there is a mandatory trading requirement on exchange for swaps instead of the more functional price reporting - are very important because they involve real costs for businesses, and real implications for properly functioning derivatives markets.
"I will be offering a substitute amendment that, not surprisingly, consists of the language associated with our bipartisan discussion draft agreement that Chairman Lincoln's and my staffs had worked out over the course of the last five months. I had hoped that we would be working to perfect it today. I remain hopeful that as this process moves forward there will be opportunities for us to once again seek solutions that we can all support."