A key House panel moved yesterday to tighten rules on previously unregulated derivatives, a long-awaited step toward governing the obscure and complex transactions at the heart of the troubles that befell some of Wall Street's most well-known financial houses
The House Financial Services Committee adopted a proposal close to the Obama's administration's plan to move most private trading in over-the-counter derivatives to regulated exchanges. Committee Chairman Barney Frank dropped his proposal for an outright ban on trades.
While many companies use derivatives to protect themselves against market fluctuations, these products have also become a means for financial speculation. They grew into a $600 trillion global market that regulators say can threaten the entire economy.
Frank, D-Mass., said that exemptions would apply to companies that use derivatives for commercial reasons to protect against risk. Companies could lose that exemption if regulators see a pattern of activity that places other participants in the transactions at risk.
Frank said he was persuaded not to give regulators the power to ban so-called abusive swaps.
Regulating derivatives is one of the elements of President Obama's proposal for correcting the practices of banks, investment houses and other financial institutions that caused last year's economic collapse. Obama also wants a new Consumer Financial Protection Agency to police mortgages, credit cards and other consumer products offered by banks and other financial institutions, a proposal opposed by banks and business groups.
Frank intends to have his committee adopt those proposals by the end of the week. House Majority Leader Steny Hoyer, D-Md., said he would expect the legislation to reach the House floor for a vote in three to four weeks. The Senate has yet to act on the Obama proposals.
Such derivatives as credit-default swaps brought down Wall Street banking house Lehman Brothers Holdings Inc. and nearly toppled insurance giant American International Group Inc.
Republicans said they prefer that derivative transactions be disclosed and operate under great visibility, but object to trading them in regulated exchanges.
Bankers and Republicans generally oppose a new consumer agency as well. Community banks and the Chamber of Commerce have wielded the most influence in getting the House panel's Democrats to modify and clarify the regulatory powers that Obama would give it.
Neighborhood banks "have some legitimate concerns we're dealing with," Frank said in a recent interview. "The big banks have no clout," he added. "Bank of America, JPMorgan Chase. Nobody cares what they think, literally."
Email
Facebook
Google
Twitter
Favorites
More
Advertisement