AFR Statement on the Derivatives and Overall Banking Legislation

For Immediate Release
April 19, 2010

AFR Statement on the Derivatives and Overall Banking Legislation

Heather Booth, Director, Americans for Financial Reform: “A year-and-a-half since the reckless behavior of the Big Banks took our economy to the edge of the abyss and cost 8 million Americans their jobs, the Senate is moving towards passage of meaningful reform that will rein in the Big Banks and protect consumers.

We applaud the work of the Banking and Agriculture Committees for the legislative language they produced that moves us toward accountability of the biggest Wall Street banks. The American people can’t afford to wait any longer for real reform and this legislation will help move the country in the right direction.  While we appreciate the work of the two Committees and many champions in the House and Senate, we know more work has to be done, and the bill will need to be strengthened as it moves through the legislative process. We also know that the Big Banks, and those who carry their water on Capitol Hill, will do everything in their power to derail or weaken this legislation.

The bill released last week is an important step in bringing transparency and accountability to the market in derivatives – complex financial instruments that brought the world economy to the brink of disaster.  It makes clearing and exchange trading the norm.  Additional elements of the bill we applaud include:

– Precludes financial institutions from taking advantage of the exemption provided for commercial end users of derivatives.  As this language makes clear, hedge funds, private equity funds, and insurance companies like AIG should not be allowed to continue their risky deals in secret.

– Brings the foreign exchange derivatives market into a transparent clearing and exchange trading regime.  This market represented an exposure of $15.6 trillion to the US banking system as of the third quarter of 2009, and these instruments enabled the Greek government, with the help of Goldman Sachs, to hide its true financial condition from the European Union and investors.

– Regulates access to offshore exchanges so that they cannot be used to circumvent regulations and drive up fuel prices in the US.

– Strengthens the Volker Rule proposals by separating risky derivatives trading from commercial banking.

We look forward to continuing discussions to make sure that all loopholes are closed, and derivatives regulation is up to the task of protecting the real economy.

Other areas in which we will work to strengthen the legislation as a whole include:

-Independent consumer financial protection, not subject to veto and without exclusion of any financial products or companies.

-Strengthening the Volcker Rule language separating risky investments and commercial banking.

-Creating firm limits on big bank size and leverage.

-Requiring advisor registration for venture capital and private equity fund advisors, along with the hedge fund managers already covered by the bill, and disclosure requirements for all private fund managers.

-Requiring brokers to put their customers’ interests first.  And holding those who are aiding and abetting illegal activity liable.

We need more accountability from credit rating agencies, whose misleading assessments added to the cascading causes of the crisis.

As the Agriculture bill and the Banking bill are merged and move to the Senate floor, every Senator will have to ask themselves one basic question: will they stand with Main Street which has been devastated by the reckless behavior of the Big Banks, or will they stand with Wall Street who wants to continue business as usual? AFR, and our over 250 coalition members, will continue to hold these Senators accountable and push to make sure that strong and comprehensive financial reform does not fall victim to Washington politics or backroom deals.”