Just as it did last year, the House Agriculture Committee has again voted to roll back a number of important derivatives reforms. This time, though, the media has paid closer attention, and a number of journalists have leaned on AFR to help explain the risks of the committee’s proposals and the point of the Dodd-Frank rules that it wants to weaken.

Supporters describe the committee’s moves as technical amendments or “common-sense tweaks,” in the words of Chairman Frank Lucas (R-Ill.). But in a paywalled article on Politico, Zachary Warmbrodt quotes an AFR statement strongly disputing that characterization: in combination, AFR says, the bills would “enable public bailouts of swaps dealers, weaken the ability of regulators to control derivatives trading in overseas subsidiaries of Wall Street banks and establish a blanket exemption for derivatives transactions among the thousands of subsidiaries of global banks.”

Much of the coverage has focused on H.R. 992, The Swaps Regulatory Improvement Act, which would undermine a Dodd-Frank rule requiring banks to segregate their derivatives operations from taxpayer-guaranteed funds. Reformers are concerned that this “will be the start of broader efforts to weaken Dodd-Frank,” writes Politico’s M.J. Lee, citing AFR Policy Director Marcus Stanley’s assessment of the proposal as “a really significant change to the Dodd-Frank Act, because it greatly, greatly expands the list of swaps that could be bailed out.”

On Naked Capitalism, Yves Smith quotes at length from one of AFR’s (in her words) “layperson friendly letters” of opposition: “It is important to be clear about exactly what [H.R. 992] would do: it would change the law to permit public support of swaps dealing activities at some of the largest banks on Wall Street. At a time when there is bipartisan agreement that subsidies to too-big-to-fail banks must end, this legislation moves in exactly the wrong direction. If the experience of the financial crisis was not enough, the recent derivatives losses at JP Morgan’s London affiliate should remind us again that a taxpayer backstop to derivatives speculation at giant financial institutions is a bad idea. That is what H.R. 992 would permit and that is why it must be rejected…”

Silla Brush of Bloomberg looks at H.R. 1256, which would curtail the CFTC’s ability to regulate derivatives transactions involving the foreign subsidiaries of U.S. banks.  Brush quotes AFR’s Marcus Stanley’s description of the bill as “an attempt to derail the [CFTC’s cross-border] guidance and tie down the ability of the CFTC to do anything.”

Between H.R. 1256 and H.R. 677 (The Inter-Affiliate Swap Clarification Act), the Agriculture Committee’s proposals carve out a huge loophole for the biggest banks, Mike Konczal writes on Washingtonpost.com.  He quotes AFR’s Marcus Stanley, explaining that “the major Wall Street banks have literally thousands of subsidiaries in dozens of countries, so proper inter-affiliate regulation is crucial… If cross-border derivatives rules are weakened, you will have regulatory races to the bottom. If both these bills pass, it’s worse than the individual parts, as financial firms are expert at moving money and will use both to effectively evade regulations.”

AFR is on record opposing six of the seven committee-approved bills, including H.R. 1038, which would carve out a regulatory exemption for derivatives deals involving public utilities. While supporters of the measure say it aims to save utilities money, Zach Carter of Huffington Post cites the contrary view of Demos Senior Fellow Wallace Turbeville, testifying before the Agriculture Committee on AFR’s behalf. “I had the uncomfortable opportunity to witness sales calls by derivatives specialists on governmental utilities,” Turbeville said, recalling his 12 years as an investment banker in the Municipal Bond Department of Goldman Sachs. “I have seen the technique of fostering a sense of trust, encouraging an advisory relationship that can be exploited to sell an immensely profitable derivative when other alternatives could be better.”

“The Senate’s report on JP Morgan should have shown lawmakers that the problem with Dodd-Frank is not that it is too burdensome for banks, but that it is too weak,” writes Pat Garofalo of US News & World Report. Garofalo, too, quotes from AFR: “Too many members of the House Agriculture Committee seem to have their heads buried in the sand… The ‘London Whale’ revelations show that the biggest of the too-big-to-fail banks have yet to be deterred from the ‘business as usual’ practices that created the financial crisis.”

Jim Himes walks fine line on changing Dodd-Frank
M.J. Lee, Politico, 3/20/13

Wall Street Wins Under Swap-Rule Changes Moving in House
Silla Brush, Bloomberg, 3/20/13

Wall Street Deregulation Garners Bipartisan Support Despite Devastating JPMorgan Report
Zach Carter, Huffington Post, 3/19/13

Is it already time to weaken Dodd-Frank?
Mike Konczal, Washington Post Wonkblog, 3/23/13

We’re Getting the Feeling That Wall Street Isn’t Sorry
Pat Garofalo, US News & World Report, 3/22/13

Dodd-Frank vs. the Financial Industry
Andy Waldock, Commodity & Derivative Advisors, 3/28/23

Bills approved by the Agriculture Committee (3/20/13)

• H.R. 634 – Business Risk Mitigation and Price Stabilization Act.
• H.R. 677 – Inter-Affiliate Swap Clarification Act.
• H.R. 742 – Swap Data Repository and Clearinghouse Indemnification Correction Act.
• H.R. 992 – Swaps Regulatory Improvement Act.
• H.R. 1003 – imposes additional cost-benefit analysis requirements on the CFTC.
• H.R. 1038 – Public Power Risk Management Act.
• H.R. 1256 – Swap Jurisdiction Certainty Act.