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

Floor Speech

Location: Washington, DC


Mr. STIVERS. I would like to thank the gentleman from New Jersey for yielding me time. I would also like to thank my fellow Ohioan, Ms. Fudge, for her hard work and support on this bill, and I would like to thank Ms. Moore from Wisconsin for her hard work as I recognize that she improved the bill. I would also like to thank the chairs and ranking members of the Financial Services and Agriculture Committees and their staffs for their hard work on this bill.

Mr. Speaker, this is bipartisan legislation that clarifies the Dodd-Frank Financial Reform Act by recognizing that there is an important distinction between inter-affiliate swaps and market-facing swaps. While market-facing swaps carry risk, inter-affiliate swaps do not. They're simply an accounting practice used within corporate families to assign the ownership of derivatives inside the corporate umbrella. Without providing this distinction, corporations using inter-affiliate swaps that manage their risk in a central way would be forced to pay up to three times for the way they do business. In fact, they would collateralize their derivatives against the market on one side and then on both sides of the inter-affiliate swap, so they would actually pay three times what you would pay if you didn't manage your risk in a centralized way.

The irony of that is, in managing your risk in a centralized way, it actually provides better protection and allows for experts to manage your risk. The problem with that also is it would tie up working capital that could be used to create jobs here in the United States and get our economy moving and focusing on our recovery.

There are important protections in this bill, as well, that the lady from Ohio already alluded to. We put protections in this bill to make sure that businesses that utilize this provision are, indeed, truly affiliated. We also made sure that there were reporting requirements so that these swaps adhere to transparency in the marketplace. We also made sure that it's very clear that any attempt to use these provisions to evade provisions under the Dodd-Frank bill for someone who is just trying to evade the law and does not have true inter-affiliate swaps would not be allowed. We also ensured that regulators keep their authority to manage the safety and soundness of America's financial institutions.

The bottom line is we should not overcharge businesses for an accounting method they use that does not generate additional risk. By passing this legislation, we are preventing these internal transactions from being subject to duplicative regulations that could drive jobs overseas and increase costs for consumers.

This bill was reported unanimously in the Financial Services Committee 53 0, and it passed by unanimous voice vote in the Agriculture Committee. I urge my colleagues to vote in favor of this legislation.


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