Federal, Regulation, Regulatory changes

House passes bill to scale back Dodd-Frank swaps “push out” provision

170px-Seal_of_the_United_States_House_of_Representatives.svgThe House of Representatives voted 292-122 last week to pass the Swaps Regulatory Improvement Act, which is designed to provide banks more flexibility to use swaps to hedge risk.

Section 716 of Dodd-Frank requires banks to “push out” all of their derivatives operations into a non-bank entity, though banks are still able to hedge risk directly through interest rate and foreign exchange swaps, The Hill reports.

The bill, co-sponsored by Reps. Jim Himes (D-Conn.) and Sean Patrick Maloney (D-N.Y.), passed with bipartisan support.

“There is a difference between wanting to roll back Dodd-Frank and identifying problem areas we might address,” Himes, a former Goldman Sachs banker, said in an interview, according to Financial Times. “This is a good-faith effort to try to make Dodd-Frank better.”

The bill amends Dodd-Frank to allow banks to trade equity and commodity-based swaps. Prohibited swaps of complex, asset-based derivatives, which contributed to the financial crisis, are still banned.

Critics of the legislation maintain that it raises costs for certain groups, such as farmers and ranchers, and subsequently consumers, but proponents say it will limit risks to the U.S. financial system, Financial Times reports.

Most large American and foreign banks have an additional two years to comply with the swaps push out rule, which took effect in July.

Sen. Kay Hagan (D-N.C.) proposed similar legislation, but the chamber has not moved forward with any amendments to Dodd-Frank. The Obama Administration has said it seeks to finish the Dodd-Frank rules before revisiting any of its provisions, according to Financial Times.

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