[House Report 112-476]
[From the U.S. Government Publishing Office]
112th Congress Rept. 112-476
HOUSE OF REPRESENTATIVES
2d Session Part 1
======================================================================
SWAPS BAILOUT PREVENTION ACT
_______
May 11, 2012.--Ordered to be printed
_______
Mr. Bachus, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 1838]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 1838) to repeal a provision of the Dodd-Frank
Wall Street Reform and Consumer Protection Act prohibiting any
Federal bailout of swap dealers or participants, having
considered the same, report favorably thereon with amendments
and recommend that the bill as amended do pass.
The amendments are as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Swaps Bailout Prevention Act''.
SEC. 2. REFORM OF PROHIBITION ON SWAP ACTIVITY ASSISTANCE.
Section 716 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (15 U.S.C. 8305) is amended--
(1) in subsection (b), by adding at the end the following:
``(3) Covered depository institution.--The term `covered
depository institution' means--
``(A) an insured depository institution; and
``(B) a United States uninsured branch or agency of a
foreign bank that has a prudential regulator.'';
(2) in subsection (c)--
(A) in the heading for such subsection, by striking
``Insured'' and inserting ``Covered'';
(B) by striking ``an insured'' and inserting ``a
covered'';
(C) by striking ``such insured'' and inserting ``such
covered''; and
(D) by striking ``or savings and loan holding
company'' and inserting ``savings and loan holding
company, or foreign banking organization (as such term
is defined under Regulation K (12 C.F.R. 211.21(o)))'';
(3) by amending subsection (d) to read as follows:
``(d) Only Bona Fide Hedging and Traditional Bank Activities
Permitted.--
``(1) In general.--The prohibition in subsection (a) shall
not apply to any covered depository institution that limits its
swap and security-based swap activities to the following:
``(A) Hedging and other similar risk mitigation
activities.--Hedging and other similar risk mitigating
activities directly related to the covered depository
institution's activities.
``(B) Non-structured finance swap activities.--Acting
as a swaps entity for swaps or security-based swaps
other than a structured finance swap.
``(C) Certain structured finance swap activities.--
Acting as a swaps entity for swaps or security-based
swaps that are structured finance swaps, if--
``(i) such structured finance swaps are
undertaken for hedging or risk management
purposes; or
``(ii) each asset-backed security underlying
such structured finance swaps is of a credit
quality and of a type or category with respect
to which the prudential regulators have jointly
adopted rules authorizing swap or security-
based swap activity by covered depository
institutions.
``(2) Definitions.--For purposes of this subsection:
``(A) Structured finance swap.--The term `structured
finance swap' means a swap or security-based swap based
on an asset-backed security (or group or index
primarily comprised of asset-backed securities).
``(B) Asset-backed security.--The term `asset-backed
security' has the meaning given such term under section
3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)).'';
(4) in subsection (e), by striking ``an insured'' and
inserting ``a covered'';
(5) in subsection (f)--
(A) by striking ``an insured'' and inserting ``a
covered''; and
(B) by striking ``the insured'' each place such term
appears and inserting ``the covered'';
(6) in subsection (g), by striking ``insured'' and inserting
``covered'';
(7) in subsection (m), by striking ``An insured'' and
inserting ``A covered''; and
(8) by adding at the end the following:
``(n) Foreign Swap Activity.--
``(1) In general.--This section shall not apply to swap or
security-based swap activity conducted outside the United
States with a non-U.S. counterparty by a non-U.S. swaps entity.
``(2) Definitions.--For purposes of this subsection, the
terms `non-U.S. swaps entity' and `non-U.S. counterparty' mean
a swaps entity or counterparty, respectively, that is licensed,
in the case of a foreign branch of a United States depository
institution, or organized under the laws of a jurisdiction
outside the United States.''.
Amend the title so as to read:
A bill to amend provisions in section 716 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act relating
to Federal assistance for swaps entities.
Purpose and Summary
H.R. 1838, the ``Swaps Bailout Prevention Act,'' amends
Section 716 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (P.L. 111-203) in order to allow covered
depository institutions to trade swaps with their affiliates,
except for certain structured finance swaps. Under the
legislation, the only swaps that covered depository
institutions must spin out to separately capitalized entities
are structured finance swaps, unless they are (1) undertaken
for hedging or risk management purposes or (2) expressly
permitted by prudential regulators to take place in a covered
depository institution. The bill also ensures that uninsured
U.S. branches and agencies of foreign banks are treated the
same as insured depository institutions by defining both groups
as ``covered depository institutions.'' These amendments to the
Dodd-Frank Act mitigate the potential negative impacts of
Section 716; if Section 716 is left unchanged, it could weaken
the U.S. financial system and place U.S. financial institutions
at a competitive disadvantage against their foreign
counterparts.
Background and Need for Legislation
Section 716 prohibits ``federal assistance''--defined as
``the use of any advances from any Federal Reserve credit
facility or discount window . . . [or] Federal Deposit
Insurance Corporation insurance or guarantees''--to ``swaps
entities,'' which include swap dealers, security-based swap
dealers, major swap participants, and major security-based swap
participants. Section 716 is known as the swap desk ``push
out'' or ``spin off'' provision, because it will force
financial institutions that have swap desks to move them out of
the financial institution and into an affiliate in order for
that institution to maintain its access to Federal Reserve
credit facilities and federal deposit insurance. Section 716
allows insured depository institutions to continue dealing in
swaps related to interest rates, foreign currency, and swaps
permitted under the National Bank Act; however, it prohibits
insured depository institutions from engaging in swaps related
to commodities, equities, and credit. Section 716 also
prohibits the uninsured U.S. branches and agencies of foreign
institutions from engaging in swaps if those foreign
institutions retain access to federal assistance.
Section 716 could result in two negative consequences for
the U.S. financial system and U.S. financial institutions.
First, Section 716 may make the U.S. financial system less
stable by forcing swap trading into the unregulated shadow
banking system. As Federal Reserve Board Chairman Ben Bernanke
has pointed out, Section 716 ``would make the U.S. financial
system less resilient and more susceptible to systemic risk''
because ``forcing [commercial and hedging activities] out of
insured depository institutions would weaken both financial
stability and strong prudential regulation.'' Second, Section
716 may place U.S. financial institutions at a significant
competitive disadvantage against their foreign counterparts
because foreign jurisdictions do not plan to adopt a provision
similar to Section 716 in their ongoing efforts to reform the
global derivatives marketplace.
In light of the potential negative consequences, former
Federal Reserve Board Chairman Paul Volcker and former Federal
Deposit Insurance Corporation Chairman Sheila Bair both
expressed serious concerns about Section 716 during the Dodd-
Frank House-Senate Conference Committee deliberations. Mr.
Volcker stated that the ``provision of derivatives by
commercial banks to their customers in the usual course of a
banking relationship should not be prohibited.'' Ms. Bair
stated that ``one unintended outcome of this provision would be
weakened, not strengthened, protection of the insured bank and
the Deposit Insurance Fund.'' To ensure that the U.S. financial
system is not weakened and that U.S. financial institutions are
not placed at a competitive disadvantage against their foreign
counterparts, Representative Nan Hayworth introduced H.R. 1838
on May 11, 2011.
The Subcommittee on Capital Markets and Government
Sponsored Enterprises held a legislative hearing on H.R. 1838
on October 14, 2011. During that hearing, the Subcommittee
received testimony from a variety of financial market
participants, many of whom expressed concerns about Section 716
and support for H.R. 1838. For example, Conrad Voldstad, Chief
Executive Officer of the International Swaps and Derivatives
Association, testified that ``Section 716 brings no real risk-
reducing benefits'' and that it will place U.S. financial
institutions ``at a competitive disadvantage to their non-U.S.
counterparts,'' which will lead to ``American customers of
these firms'' having ``higher costs.'' Keith Bailey, Managing
Director of Barclays Capital, testified on behalf of the
Institute of International Bankers, and spoke about the
negative effects of the differential treatment of uninsured
U.S. branches and agencies of foreign banks, which he stated
would ``significantly reduce competition and worsen pricing in
the U.S. swaps market, especially given that 8 of the 14
largest global derivatives dealers are foreign banks.''
Moreover, on November 14, 2011, economist Mark Zandi wrote
to Chairman Bachus to express concerns similar to those raised
by Mr. Bernanke, Mr. Volcker, and Ms. Bair. Mr. Zandi explained
that he has ``significant concerns with [Section 716] because
of its potential to increase systemic risk, create major
inefficiencies in markets, and likely have a major impact on
U.S. competitiveness.''
Hearing
On October 14, 2011, the Subcommittee on Capital Markets
and Government Sponsored Enterprises held a hearing entitled
``Legislative Proposals to Bring Certainty to the Over-the-
Counter Derivatives Market,'' to consider H.R. 1838, and three
other bills. This was a one-panel hearing, and the following
witnesses testified:
Mr. Keith Bailey, Managing Director, Fixed
Income, Currencies and Commodities, Barclays Capital,
on behalf of the Institute of International Bankers
Mr. Shawn Bernardo, Senior Managing
Director, Tullett Prebon, on behalf of the Wholesale
Market Brokers' Association Americas
Ms. Brenda Boultwood, Chief Risk Officer and
Senior Vice President, CE Risk Management Division
Office, Constellation Energy, on behalf of the
Coalition of Derivatives End-Users
Mr. James Cawley, CEO, Javelin Capital
Markets LLC
Mr. Kent Mason, Davis & Harman LLP, on
behalf of the American Benefits Council and the
Committee on the Investment of Employee Benefit Assets
Mr. Conrad Voldstad, Chief Executive
Officer, International Swaps and Derivatives
Association
Committee Consideration
The Subcommittee on Capital Markets and Government
Sponsored Enterprises met in open session on November 15, 2011,
and ordered H.R. 1838, as amended, favorably reported to the
full Committee by a record vote of 21 yeas and 12 nays (Record
vote No. CM-44).
The Committee on Financial Services met in open session on
February 16, 2012, and ordered H.R. 1838, as amended, favorably
reported to the House by voice vote.
Committee Vote
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto.
There were no record votes taken on amendments or in connection
with ordering H.R. 1838, as amended, reported to the House.
During consideration of H.R. 1838 by the Committee, the
following amendment was considered:
1. An amendment offered by Mr. Himes, Mrs. Maloney, and Ms.
Hayworth, No. 1, to ensure that U.S. operations of foreign
financial institutions are treated the same as U.S. financial
institutions; clarify the extraterritorial reach of section 716
of the Dodd-Frank Act; and require structured finance swaps to
be pushed out to a separate entity, was agreed to by voice
vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has held a hearing and
made findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The objective of H.R. 1838, the ``Swaps Bailout Prevention
Act'' is to amend Section 716 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Public Law 111-203) to
require financial institutions to trade certain structured
finance swaps in a separately capitalized entity, which cannot
receive Federal financial assistance. H.R. 1838 prohibits all
structured finance swaps from taking place in the financial
institution except structured finance swaps (1) that are
undertaken for hedging or risk management purposes or (2) that
the prudential regulators have expressly allowed covered
depository institutions to undertake. The bill also ensures
that uninsured U.S. branches and agencies of foreign banks are
treated the same as insured depository institutions. These
amendments will mitigate the potential negative impacts of
Section 716, which, if left unchanged, could weaken the U.S.
financial system and place U.S. financial institutions at a
competitive disadvantage against their foreign counterparts.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
May 4, 2012.
Hon. Spencer Bachus,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1838, the Swaps
Bailout Prevention Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Daniel
Hoople and Barbara Edwards.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 1838--Swaps Bailout Prevention Act
H.R. 1838 would allow certain financial firms to retain
their financial portfolios containing swaps and remain eligible
for assistance from the Federal Reserve and the Federal Deposit
Insurance Corporation (FDIC). A swap is a contract between two
parties to exchange payments based on the price of an
underlying asset or change in reference rate. Swaps can be used
to hedge or mitigate certain risks associated with a firm's
traditional activities, such as interest rate risk, or to
speculate based on expected changes in prices and rates.
CBO estimates that enacting this legislation would not have
a significant impact on the net cash flows of the Federal
Reserve or the FDIC over the next 10 years. Enacting this
legislation could affect direct spending and revenues;
therefore, pay-as-you-go procedures apply. However, CBO
estimates that any such effects would be insignificant over the
next 10 years.
H.R. 1838 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
Section 716 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act denies federal assistance from the
Federal Reserve (with some exception) and the FDIC to any swap
dealer or major swap participant registered with the Securities
and Exchange Commission or the Commodity Futures Trading
Commission. This prohibition does not apply to a major swap
participant that is an insured depository institution (IDI) or
an IDI acting as a swaps dealer for hedging purposes or for
swaps involving bank-permissible securities. (Bank-permissible
swaps include those that reference interest rates, currencies,
government securities, and precious metals but not other
commodities or equities.) Under current law, IDIs must divest
of swaps that do not fall into those categories to an affiliate
if the firm is part of a financial holding company or cease
those activities altogether. (Commercial banks with retail
operations in the United States are required to be federally
insured; thus, losing access to FDIC assistance is not an
option for those institutions.)
Similar to the exemption granted to IDIs, H.R. 1838 would
allow an uninsured U.S. branch or agency of a foreign bank to
engage in certain permissible swap activities and to divest of
others to an affiliate without jeopardizing access to federal
assistance. In addition, the legislation would expand
permissible swap activities to only exclude swaps based on
asset-backed securities that are unregulated or not of a credit
quality established by regulation. Finally, H.R. 1838 would
exempt swap activities of foreign entities conducted outside of
the United States with non-U.S. counterparties.
CBO expects that enacting this legislation would have no
measurable impact on advances made by the Federal Reserve or on
the future cost of efforts by the FDIC to resolve failed IDIs.
As such, CBO estimates no significant change in the net cash
flows of either entity, resulting in no significant net effect
on the federal budget over the next 10 years.
The CBO staff contacts for this estimate are Daniel Hoople
and Barbara Edwards. The estimate was approved by Theresa
Gullo, Deputy Assistant Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
H.R. 1838 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Section-by-Section Analysis of the Legislation
Section 1. Short title
The short title of the Act is the ``Swaps Bailout
Prevention Act.''
Section 2. Reform of prohibition on swap activity assistance
This section defines a ``covered depository institution''
as an insured depository institution or a United States
uninsured branch or agency of a foreign bank that has a
prudential regulator.
This section also replaces the term ``insured depository
institution'' in Section 716 with the term ``covered depository
institution.''
This section provides that covered depository institutions
can engage in to engage in all swap and security-based swap
activities except structured finance swaps that are neither (1)
undertaken for hedging or risk management purposes nor (2)
expressly allowed by prudential regulators to take place in a
covered depository institution.
This section defines ``structured finance swap'' as a swap
or security-based swap based on an asset-backed security (or
group or index primarily comprised of asset-backed securities.
This section also defines ``asset-backed security'' to have
the same meaning it has under Section 3(a) of the Securities
Exchange Act of 1934.
This section also clarifies that Section 716 does not apply
to swaps or security-based swap activities conducted outside
the United States with a non-U.S. counterparty by a non-U.S.
swaps entity.
This section also defines ``non-U.S. swaps entity'' and
``non-U.S. counterparty'' as a swaps entity or counterparty
licensed or organized under the laws of a jurisdiction outside
the United States.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
* * * * * * *
TITLE VII--WALL STREET TRANSPARENCY AND ACCOUNTABILITY
* * * * * * *
Subtitle A--Regulation of Over-the-Counter Swaps Markets
PART I--REGULATORY AUTHORITY
* * * * * * *
SEC. 716. PROHIBITION AGAINST FEDERAL GOVERNMENT BAILOUTS OF SWAPS
ENTITIES.
(a) * * *
(b) Definitions.--In this section:
(1) * * *
* * * * * * *
(3) Covered depository institution.--The term
``covered depository institution'' means--
(A) an insured depository institution; and
(B) a United States uninsured branch or
agency of a foreign bank that has a prudential
regulator.
(c) Affiliates of [Insured] Covered Depository
Institutions.--The prohibition on Federal assistance contained
in subsection (a) does not apply to and shall not prevent [an
insured] a covered depository institution from having or
establishing an affiliate which is a swaps entity, as long as
[such insured] such covered depository institution is part of a
bank holding company, [or savings and loan holding company]
savings and loan holding company, or foreign banking
organization (as such term is defined under Regulation K (12
C.F.R. 211.21(o))), that is supervised by the Federal Reserve
and such swaps entity affiliate complies with sections 23A and
23B of the Federal Reserve Act and such other requirements as
the Commodity Futures Trading Commission or the Securities
Exchange Commission, as appropriate, and the Board of Governors
of the Federal Reserve System, may determine to be necessary
and appropriate.
[(d) Only Bona Fide Hedging and Traditional Bank Activities
Permitted.--The prohibition in subsection (a) shall apply to
any insured depository institution unless the insured
depository institution limits its swap or security-based swap
activities to:
[(1) Hedging and other similar risk mitigating
activities directly related to the insured depository
institution's activities.
[(2) Acting as a swaps entity for swaps or security-
based swaps involving rates or reference assets that
are permissible for investment by a national bank under
the paragraph designated as ``Seventh.'' of section
5136 of the Revised Statutes of the United States ( 12
U.S.C. 24), other than as described in paragraph (3).
[(3) Limitation on credit default swaps.--Acting as a
swaps entity for credit default swaps, including swaps
or security-based swaps referencing the credit risk of
asset-backed securities as defined in section 3(a)(77)
of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(77)) (as amended by this Act) shall not be
considered a bank permissible activity for purposes of
subsection (d)(2) unless such swaps or security-based
swaps are cleared by a derivatives clearing
organization (as such term is defined in section la of
the Commodity Exchange Act (7 U.S.C. la)) or a clearing
agency (as such term is defined in section 3 of the
Securities Exchange Act (15 U.S.C. 78c)) that is
registered, or exempt from registration, as a
derivatives clearing organization under the Commodity
Exchange Act or as a clearing agency under the
Securities Exchange Act, respectively.]
(d) Only Bona Fide Hedging and Traditional Bank Activities
Permitted.--
(1) In general.--The prohibition in subsection (a)
shall not apply to any covered depository institution
that limits its swap and security-based swap activities
to the following:
(A) Hedging and other similar risk mitigation
activities.--Hedging and other similar risk
mitigating activities directly related to the
covered depository institution's activities.
(B) Non-structured finance swap activities.--
Acting as a swaps entity for swaps or security-
based swaps other than a structured finance
swap.
(C) Certain structured finance swap
activities.--Acting as a swaps entity for swaps
or security-based swaps that are structured
finance swaps, if--
(i) such structured finance swaps are
undertaken for hedging or risk
management purposes; or
(ii) each asset-backed security
underlying such structured finance
swaps is of a credit quality and of a
type or category with respect to which
the prudential regulators have jointly
adopted rules authorizing swap or
security-based swap activity by covered
depository institutions.
(2) Definitions.--For purposes of this subsection:
(A) Structured finance swap.--The term
``structured finance swap'' means a swap or
security-based swap based on an asset-backed
security (or group or index primarily comprised
of asset-backed securities).
(B) Asset-backed security.--The term ``asset-
backed security'' has the meaning given such
term under section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)).
(e) Existing Swaps and Security-based Swaps.--The prohibition
in subsection (a) shall only apply to swaps or security-based
swaps entered into by [an insured] a covered depository
institution after the end of the transition period described in
subsection (f).
(f) Transition Period.--To the extent [an insured] a covered
depository institution qualifies as a ``swaps entity'' and
would be subject to the Federal assistance prohibition in
subsection (a), the appropriate Federal banking agency, after
consulting with and considering the views of the Commodity
Futures Trading Commission or the Securities Exchange
Commission, as appropriate, shall permit [the insured] the
covered depository institution up to 24 months to divest the
swaps entity or cease the activities that require registration
as a swaps entity. In establishing the appropriate transition
period to effect such divestiture or cessation of activities,
which may include making the swaps entity an affiliate of [the
insured] the covered depository institution, the appropriate
Federal banking agency shall take into account and make written
findings regarding the potential impact of such divestiture or
cessation of activities on [the insured] the covered depository
institution's (1) mortgage lending, (2) small business lending,
(3) job creation, and (4) capital formation versus the
potential negative impact on insured depositors and the Deposit
Insurance Fund of the Federal Deposit Insurance Corporation.
The appropriate Federal banking agency may consider such other
factors as may be appropriate. The appropriate Federal banking
agency may place such conditions on [the insured] the covered
depository institution's divestiture or ceasing of activities
of the swaps entity as it deems necessary and appropriate. The
transition period under this subsection may be extended by the
appropriate Federal banking agency, after consultation with the
Commodity Futures Trading Commission and the Securities and
Exchange Commission, for a period of up to 1 additional year.
(g) Excluded Entities.--For purposes of this section, the
term ``swaps entity'' shall not include any [insured] covered
depository institution under the Federal Deposit Insurance Act
or a covered financial company under title II which is in a
conservatorship, receivership, or a bridge bank operated by the
Federal Deposit Insurance Corporation.
* * * * * * *
(m) Ban on Proprietary Trading in Derivatives.--[An insured]
A covered depository institution shall comply with the
prohibition on proprietary trading in derivatives as required
by section 619 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
(n) Foreign Swap Activity.--
(1) In general.--This section shall not apply to swap
or security-based swap activity conducted outside the
United States with a non-U.S. counterparty by a non-
U.S. swaps entity.
(2) Definitions.--For purposes of this subsection,
the terms ``non-U.S. swaps entity'' and ``non-U.S.
counterparty'' mean a swaps entity or counterparty,
respectively, that is licensed, in the case of a
foreign branch of a United States depository
institution, or organized under the laws of a
jurisdiction outside the United States.
* * * * * * *
MINORITY VIEWS
The Wall Street Reform and Consumer Protection Act
requires, for the first time, the regulation of over-the-
counter derivatives, previously opaque transactions that helped
bring our financial system to the brink of disaster. The vast
majority of derivatives must now be centrally cleared and
publicly reported, and be backed by margin and capital to
ensure that swap dealers and major swap users can honor their
commitments. In addition, the reform law also prohibits banks
from placing bets with federally insured deposits through the
``Volcker Rule''. Both measures serve as important safeguards
as we rebuild trust in our financial system.
As amended, H.R. 1838 would repeal portions of Section 716
of the financial reform law, also known as the ``push-out
provision.'' Section 716 prohibits banks from engaging in
several types of derivatives. Questions have been raised about
this provision by economists and regulators including FDIC's
Sheila Bair, who are concerned that it might interfere with a
bank's ability to use derivatives to diminish risk. Section 716
was not part of the original House-passed version of the
financial reform law.
During the Full Committee markup, Democrats worked with the
Majority to amend H.R. 1838 to continue the prohibition of
complex swaps employed by AIG with devastating effect. H.R.
1838, as amended, addresses the valid criticisms of Section 716
without weakening the financial reform law's important
derivative safeguards or prohibitions on bank proprietary
trading.
Barney Frank.
Wm. Lacy Clay.
Gwen Moore.
James A. Himes.
Ruben Hinojosa.
Andre Carson.
Gary L. Ackerman.
Al Green.
Stephen F. Lynch.
David Scott.
Maxine Waters.
Carolyn B. Maloney.
Melvin L. Watt.
Luis V. Gutierrez.
Gary C. Peters.
Ed Perlmutter.
Michael E. Capuano.
Gregory W. Meeks.