The House Committee on Agriculture took up several pieces of bipartisan legislation that would help prevent unnecessary and harmful regulation of derivatives end-users – and ensure the original intent of Congress is upheld. There has been growing concern in the end-user community that proposed regulations to implement the Dodd-Frank bill could go beyond the intent of Congress and prove damaging to economic growth and U.S. competitiveness.

The bills include: H.R. 2682, the Business Mitigation and Price Stabilization Act; H.R. 2779, to exempt inter-affiliate swaps from certain regulatory requirements;  H.R. 3527, Protecting Main Street End-Users from Excessive Regulation; H.R. 1840, requiring the Commodity Futures Trading Commission to include a cost-benefit analysis of their regulations, and; H.R. 2586, the Swap Execution Facility Clarification Act.  Each offer solutions that would help prevent unnecessary and harmful regulation of derivatives end-users. The NAM stands in strong support of all of them.

Fortunately the bills passed out of committee with bipartisan support  and hopefully the momentum necessary to be on the house floor soon. These bills would ensure that any negative impacts of the Dodd-Frank implementation on end-users can be mitigated.

The banner, front-page story in today’s Wall Street Journal is “Risk Rule Riles Main Street“:

U.S. manufacturers, energy producers and other corporations are balking at a proposed rule they fear would drive up the cost of hedging against price swings in the commodities they depend upon, renewing a high-stakes debate over whether the regulation of derivatives should extend beyond the financial industry.

Caterpillar Inc., MillerCoors, Ford Motor Co. and other companies outside finance fought hard last year to avoid being regulated under a framework created by Congress to oversee the $583 trillion derivatives market, part of the Dodd-Frank financial overhaul. At the time, lawmakers said nonfinancial companies wouldn’t have to meet the potentially costly requirement to back up their derivatives trades with cash or other assets as collateral.

But the new rule, unveiled by the Federal Reserve, Federal Deposit Insurance Corp. and other bank regulators, said banks would have to impose such requirements on their corporate clients if their exposure to these trades grew too risky.

The regulators announced the proposed rules on Tuesday with a news release, “Agencies Seek Comment on Swap Margin and Capital Requirements,” and a notice of proposed rule-making.

The National Association of Manufacturers is a member of the Coalition for Derivatives End-Users, which released a statement in reaction to the proposal. While noting the responsiveness of the Commodity Futures Trading Commission to the group’s points, the release raises further objections:

Under the rules proposed by the prudential banking regulators, margin requirements will apply to all end-user transactions that exceed a credit threshold. And under both the CFTC and the prudential regulators’ rules, regulators will impose margin on several categories of end-user trades, including transactions designed to manage risks associated with pension plans, insurance products and certain types of business financing.

Despite the clear legislative history to the contrary, the regulators continue to misinterpret the Dodd-Frank Act as giving them authority to impose margin requirements on end-users. This misinterpretation exposes end-users to margin requirements that Congress did not intend regulators to impose, and the economy to the harm associated with these new requirements.

Indeed, as Reuters reports, CFTC Commissioner Scott O’Malia dissented in the 4-1 vote to publish the rules, arguing, “I believe commercial end-users and many of the financial end-users will be dissatisfied with the lack of harmonization among the different regulatory bodies.”

• Reuters, “Swap market crackdown seeks to spare businesses“
• Bloomberg, “End-Users May Face Swap Margin Requirements as CFTC, FDIC Split‎”
• CNBC.com, “Swap market crackdown seeks to spare businesses“
• Investor’s Business Daily, “Swap rules exempt end users“

From The Washington Post, “Trade Groups Seek More Limited Plan to Regulate Derivatives Market“:

While government officials are seeking to rein in the excesses that contributed to the financial crisis, business lobbyists have been warning key lawmakers that companies such as Ford, Johnson & Johnson and Coca-Cola could suffer if the new regulations are far-reaching. …[snip]

The Coalition for Derivatives End-Users, organized by groups such as the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers, sent a letter to lawmakers last week saying that “some reform proposals would place an extraordinary burden on end-users of derivatives in every sector of the economy — including manufacturers, energy companies, utilities, healthcare companies and commercial real estate owners and developers.” The letter was signed by more than 170 companies and trade associations.

Here’s the coalition’s letter.

From Reuters, “U.S. groups eye second Obama decision on China yuan“:

WASHINGTON (Reuters) – U.S. labor and manufacturing groups urged President Barack Obama on Tuesday to live up to his campaign rhetoric and formally label China a currency manipulator in a Treasury Department report due out next week….[snip]

The largest U.S. manufacturing group, the National Association of Manufacturers (NAM), also wants Obama to designate China a currency manipulator to increase pressure within the International Monetary Fund on Beijing.

“A lot of people were surprised they didn’t cite China before. NAM’s view is that if the U.S. doesn’t cite China under the law, then it is unlikely that the IMF is going to do so,” said Frank Vargo, vice president for international economic affairs at the manufacturers’ association.