The Hagstrom Report

Agriculture News As It Happens

House Ag approves Dodd-Frank bill along party lines

After bitter partisan debate, the House Agriculture Committee today voted along party lines to approve a bill to delay implementation of the Dodd-Frank financial services bill provision that regulates the futures and derivatives industry. The vote was 25 to 20, with all Republicans present voting for the bill and all Democrats against.

The bill is considered unlikely to become law, because it is unlikely to pass the Democratic-controlled Senate or win approval from President Obama.

In opening statements, Chairman Frank Lucas, R-Okla., said the bill was necessary, while ranking member Collin Peterson, D-Minn., said the Republicans are avoiding reforms needed after the derivatives industry played a major role in plunging the country and the world into the 2008 financial crisis.

Lucas, who co-sponsored the bill, said implementation must be delayed because "the rushed regulatory process to implement Title VII of the Dodd-Frank Act is jeopardizing the viability of the rules themselves, and the health and liquidity of the derivatives markets."

Lucas said he was advancing the bill because a long list of groups favor it.

“We've heard from agricultural cooperatives, electric utilities, large global banks, small community banks and farm credit banks. We’ve heard from manufacturers, pension plans, mutual funds and a global oil and gas producer. And we’ve listened to testimony from regulated exchanges, clearinghouses, and electronic trading platforms that will be leaders in the emergence of swap execution facilities," Lucas said.

The Commodity Futures Trading Commission is supposed to implement the measure this summer, but the bill would delay this by 18 months, and gives direction to the rule-making. CFTC Commission Chairman Gary Gensler and Securities and Exchange Commission Chairman Mary Shapiro have both said they are unlikely to be able to meet the statutory deadline for implementation.

Peterson said the markup session today "begins Part Two of Republican efforts to see that the important financial reforms enacted last year never see the light of day."

Gensler and Shapiro, he said, "are not rushing to meet a fixed deadline; they are taking the time to do this right. When asked if they need additional time, they have said no. When asked if they need additional authority or flexibility given the prospect of missing deadlines, they have said no. If the regulators were to ask for more time or authority to ensure the right result is achieved, I would be happy to work to make it happen."

Peterson also said the Republicans seemed to be following the wishes of the financial services industry.

“H.R. 1573 only adds uncertainty to the rule-making process. It seems we are only here because the financial community, and even some in the end-user community, have forgotten about the financial crisis in 2008 and want to see nothing get done,” Peterson said.

“I have even heard that banks are still lobbying EU regulators to water down their rules with the promise that they will move to Europe; then they turn around to lobby U.S. regulators with the same promises,” Peterson said. “They are trying to pit foreign regulators against each other and now they have found common cause with Republicans who want to halt the Dodd-Frank Wall Street Reform and Consumer Protection Act in its tracks."

Peterson said the position limits in the Dodd-Frank bill are needed so that speculators do not dominate and overrun markets used for price discovery or hedging price risk for physical commodities.

“With gas prices at more than $4 a gallon and when even Goldman Sachs says that speculators are boosting crude oil prices by as much as $27 a barrel, Republicans want to wait until 2013 for rules that could restore balance between hedgers and speculators," Peterson said. "Michael J. Fox, of the Gasoline & Automotive Service Dealers of America, testified before the House Natural Resources Committee on March 31, 2011, that ‘the fastest way to $6 gasoline is to cut the funding to the CFTC.’ What would delaying position limit rules until 2013 mean for gas prices?," he added.

End-users of derivatives, including farm co-ops, have said they are concerned about the bill affecting them even its impact is limited, and Peterson said that if the regulators "finalize an unreasonable rule, if they establish an overly broad definition, if they put forth an implementation schedule that does not make sense for end-users, I will work with any member to rectify it. The important thing is getting this right. I believe we need to let the regulators move forward so we can find out if they get it right and fix it if they do not."

Peterson also noted that "there are several companies and end-user associations who advocate for some kind of delay, but have not officially expressed support for H.R. 1573. I hope they, like me, are uncomfortable with this bill’s all-or-nothing approach to their concerns. For those end-user groups supporting H.R. 1573, I’m afraid I now have newfound questions regarding your motivations. I wonder if there is something more going on here and am beginning to wonder about the end-user exemptions being considered by the regulators; whether there are loopholes being created that we don’t understand. Where there’s smoke there’s usually fire."

Finally, Peterson said the speed with which the Republicans have brought up the bill “shows me this is not a serious legislative effort but a partisan game to score political points."