The Swaps Regulatory Improvement Act (H.R. 992) will be voted on by the House later this week. The Bill addresses Dodd-Frank Section 716 (“Prohibition against Federal Government Bailouts of Swaps Entities”), which prohibits federally insured banks from conducting certain swaps trades. According to the House Financial Services Committee, this compels banks to “push out” trades to separate non-bank affiliates, which the Committee believes are less regulated and more highly leveraged. H.R. 992 would add amendments to ensure that federally insured financial institutions can continue to provide risk-mitigation efforts for clients that use swaps to insure against price fluctuations.
Lofchie Comment: As battered as the financial markets have been in trying to keep up with new Dodd-Frank swap regulations, all that has happened in the past will seem minor if banks are really forced to exit the swaps dealing business. Likely hundreds of thousands of contracts would have to be very substantively renegotiated. It simply cannot be done except at massive cost. Furthermore, the idea of pushing swaps transactions (which are fundamentally credit transactions) out of banks is not remotely good or safe, either for the financial system or for swap counterparties.
See: House Financial Services Committee Press Release.
See also: H.R. 992.
Related news: House Financial Services Committee Considers Various Proposed Amendments to Dodd-Frank and JOBS Act (May 8, 2013).