"Regulating the Heck out of them ...." Scott Garrett, the leading Republican on the subcommittee, thought that proposal went too far.
A turd drying in the sun.
Of course, J.P. Morgan is against regulation going to far.
The latest in this dismal march.
US lawmakers clash over derivative regulation
By Sarah O’Connor in New York
Published: June 9 2009 21:43 | Last updated: June 9 2009 21:43
Divisions emerged on Tuesday between key Democratic ¬lawmakers as Congress grappled with how best to regulate the vast and?opaque market for over-the-counter derivatives.
Barack Obama’s administration last month outlined plans for sweeping regulation of the financial instruments, which have been blamed for exacerbating the banking crisis and toppling AIG, the country’s largest insurer.
Congress is thrashing out the details of the plan, while the industry feverishly lobbies to ensure any subsequent legislation does not stifle profits in the $680,000bn market.
Paul Kanjorski, a leading Democratic member of the House financial services committee, said on Tuesday that he did not think all OTC derivatives should be forced through exchanges.
That was a direct contradiction of Tom Harkin, chair of the Senate agriculture committee which oversees the key regulator, who wants the entire market to be pushed on to exchanges.
“Subjecting all contracts to mandatory exchange trading may cast too wide a net,” Mr Kanjorski said at a hearing of his capital markets subcommittee. “However, carving out too many exemptions as we tackle regulatory reform could create widespread economic harm in the long term.”
Most deals are at present conducted over the telephone, and the Obama administration has proposed that all standardised contracts be moved on to exchanges and go through central clearing houses instead. It said more bespoke contracts should be left as they were.
Scott Garrett, the leading Republican on the subcommittee, thought that proposal went too far. Derivatives had been unfairly demonised, he said, and the government should not “regulate the heck out of [them]”.
“I am very hesitant to go so far as to say that there should be mandatory central clearing for so-called ‘standardised products’.”
Many of the subcommittee’s witnesses, who were drawn from the industry, echoed that belief. Don Thompson, associate general counsel at JPMorgan, said forcing all derivatives through clearing and exchanges would make them more expensive for the companies that use them to hedge risks.
“Many companies will choose not to hedge risks because they can’t afford to do so,” he said, adding that 90 per cent of the US’s biggest companies used derivatives. That struck a chord with many lawmakers on the committee, who urged caution for fear of harming US businesses and jobs. However, others were more aggressive. “We’re setting ourselves up to fail. We’re not going to regulate this, I get the sense of that right now,” said Stephen Lynch, a Democrat, after listening to some of his colleagues’ statements.
“I think we’re making a terrible mistake here, Mr Chairman, in talking a very soft approach. I get the sense of who’s winning here and it’s not the American taxpayer.”
Robert Pickel, chief executive of the International Swaps and Derivatives Association, said that “requiring the exchange trading of all derivatives would . . . ultimately harm the economy”. Others warned that overly-stringent regulation would simply drive the market away from the US.
Copyright The Financial Times Limited 2009 |
