Senate Approves Appropriations Bill Amending Swaps Push-Out Rule

After narrowly passing the House of Representatives on Thursday, the Consolidated and Further Continuing Appropriations Act of 2015 (the “Act”) was passed by the Senate on Saturday.

Preliminary bills leading up to the Act contained various financial regulatory reforms, including exemptions for small banks from both mortgage-underwriting standards and the Volcker rule, as well as a provision that would have subjected the Consumer Financial Protection Bureau to the Congressional appropriations process. Most of these reforms were omitted from the final text. The Act (Section 630 at page 615) amends Section 716 of Dodd-Frank (the “Swaps Push-Out Rule”), which requires insured depository institutions to “push out” certain swaps trading activities into legally separate, non-insured entities. As amended by the Act, the Swaps Push-Out Rule is limited to swaps based on asset-backed securities (and related indices) that are not used for hedging purposes (and are not otherwise permitted by prudential regulators).

In addition, the Act:

  • Requires the Director of the Office of Management and Budget to submit a report concerning the implementation costs of Dodd-Frank (Section 202 at page 540);
  • Provides that funds allocated to the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (the “CFTC”) may be used to fund a joint, inter-agency advisory committee (Section 617 at page 609); and
  • Establishes a budget of $1.5 billion for the SEC (up $150 million from the prior fiscal year) (at page 594) and $250 million for the CFTC (up $35 million from the prior fiscal year) (at page 565).

Lofchie Comment: Section 716 (commonly known as the Swaps Push-Out Rule or the Lincoln Amendment) was, by all reports, inserted into Dodd-Frank in opposition to the views of even the most enthusiastic supporters of the legislation at the insistence of then Senator from Arkansas, Blanche Lincoln, as the price of gaining her support. She appeared to believe that the provision would help her in her upcoming election. She lost the election but her provision survived, in spite of the fact that it had neither support nor the least evidence provided for its usefulness. By largely striking Section 716, Congress deleted what was arguably the single worst provision in Dodd-Frank (although there remains lots of fixes that should be made), one that would have been quite damaging to the U.S. economy, and that did not even help Senator Lincoln win her election.

See: Consolidated and Further Continuing Appropriations Act, 2015.
See also: Streetwise Professor: The Height of Absurdity: The Operation of the Government Hinges on Blanche Lincoln’s Brainchild
Related news: Congress to Vote on Bill to Repeal Swaps Push-out Requirements (December 11, 2014).