Sneaky House Bill Would Gut Financial Reform

<a href="http://www.shutterstock.com/cat.mhtml?lang=en&search_source=search_form&search_tracking_id=9CCE9050-922E-11E2-88EF-C44E1472E43D&version=llv1&anyorall=all&safesearch=1&searchterm=stock+market+crash&search_group=&orient=&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&commercial_ok=&color=&show_color_wheel=1#id=103476713&src=7BDA7B04-9227-11E2-88FC-0B0D38D0D1A0-1-38">JMiks </a>/Shutterstock

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.


This blog post has been updated.

A bipartisan group of four representatives introduced a sneaky little bill Wednesday that would dismantle a huge chunk of the historic financial reform laws enacted after the financial crisis.

The Swap Jurisdiction Certainty Act, introduced by Reps. Scott Garrett (R-N.J.), Mike Conaway (R-Tex.), John Carney (D-Del.), and David Scott (D-Ga.), three of whom sit on the House Financial Services Committee, would allow big banks to shift risky activities to foreign subsidiaries in order to avoid US regulations. Part of the landmark 2010 Dodd-Frank financial reform act requires that derivatives—financial products whose value is based on things like currency exchange rates and crop prices—be traded in public marketplaces, instead of in private. The new bill could exempt foreign companies from these US derivatives rules, which sounds reasonable; the law purportedly just affects other countries. But what it would mean is that huge US-based banks that operate internationally could just do their paperwork through their international arms to avoid US regulations, effectively gutting the section of Dodd-Frank that gave federal regulators the authority for the first time to regulate derivatives such as the credit default swaps that helped cause the 2007 bank failures.

The Commodities Futures Trading Commission and Securities and Exchange Commission were supposed to have finalized the Dodd-Frank derivatives laws into regulations a long time ago, but those governing international trading are still pending. The agencies are supposedly close to final rules now—SEC chair Elisse Walter said earlier this year that finalizing them was a top priority at the agency. But until they’re finalized, the rules are still vulnerable to tweaking, or gutting, by crafty lawmakers. (The proposed Dodd-Frank rule on international swaps already says that countries with truly comparable regulations are exempt from US regs. This bill weakens that by presuming that international rules are comparable and making it hard for the SEC and CFTC to decide otherwise.)

Carney has defended his bill as consumer-friendly and bank-friendly all at once: “Congress and regulators must ensure that we’re protecting American consumers, ending future bailouts and maintaining American competitiveness in an increasingly global economy,” he said in a press release. Garrett was more straightforward about what the bill would do. “Our job creators—millions being crushed by overly burdensome Washington rules and regulations—deserve to be on a fair, level playing field with the international community,” he said.

But last year, when Congress introduced a similar bill, financial reform advocates slammed it. Americans for Financial Reform, a group of national and state organizations that push for common sense financial reforms, wrote an open letter to representatives in May 2012:

The legislation “would create an overwhelming temptation to move swaps business overseas, indeed to the foreign jurisdictions where regulation was most lax compared to the US. In addition to seriously undermining the basic transparency and accountability requirements in the US, such a ‘race to the bottom’ would be a serious blow to the entire international effort to make derivatives markets safer.

Walter has said the derivative rules were the “critical linchpin” of Dodd-Frank because of the “global nature of the market.”

Indeed, says Dennis Kelleher, president and CEO of the Wall Street watchdog group Better Markets. “The CFTC proposed very strong cross-border guidance,” he told Mother Jones. “Even if the CFTC gets all of the other rules correct—if they don’t get the cross-border rules right, then a lot of their other work doesn’t matter.”

Update: After this post was published, a spokesperson for Garrett’s office, Maggie Seidel, got in touch with Mother Jones. She asserted that because the bill “fully and specifically authorizes the SEC and CFTC to regulate” derivatives, if banks are able to dodge strict US regulations in favor of more lax international regulations, the blame would fall on the agencies, not on the bill that Garrett and the other three House members drafted. Kelleher reiterates that the bill “raises hurdles” for the agencies by making it harder for them to label lax international regulations as lax.

Return to the story.

THE TRUTH IS...

what drives Mother Jones' team of 50-plus journalists. The truth is powerful, as evidenced by how hard those with something to hide, or profit to gain, seek to discredit it. The truth, stated boldly and reported meticulously, is what draws so many readers to Mother Jones.

And the truth is, going into the final 4 days of the year we still needed to raise $TK to hit our $350,000 goal and start 2021 on track. It's nerve-wracking, wondering if the big spike we normally see at the end of December is going to be another thing that doesn't go as planned in 2020, or worse, if, now that Donald Trump is set to leave the White House (for longer than a taxpayer-funded golf trip to a property he owns), folks might be pulling back from fighting for the truth and a democracy and think the hard work is done.

It's not, and if you can right now, please consider a year-end donation to support our team's fearless nonprofit journalism so we can close that big fundraising gap and finish the year strong, ready for all that's ahead in 2021. Whether you can give $5 or $500, it all matters in keeping us charging hard, and we'd be grateful.

payment methods

THE TRUTH IS...

what drives Mother Jones' team of 50-plus journalists. The truth is powerful, as evidenced by how hard those with something to hide, or profit to gain, seek to discredit it. The truth, stated boldly and reported meticulously, is what draws so many readers to Mother Jones.

And the truth is, going into the final 4 days of the year we still needed to raise $TK to hit our $350,000 goal and start 2021 on track. It's nerve-wracking, wondering if the big spike we normally see at the end of December is going to be another thing that doesn't go as planned in 2020, or worse, if, now that Donald Trump is set to leave the White House (for longer than a taxpayer-funded golf trip to a property he owns), folks might be pulling back from fighting for the truth and a democracy and think the hard work is done.

It's not, and if you can right now, please consider a year-end donation to support our team's fearless nonprofit journalism so we can close that big fundraising gap and finish the year strong, ready for all that's ahead in 2021. Whether you can give $5 or $500, it all matters in keeping us charging hard, and we'd be grateful.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate