Tucked into the 1,603-page omnibus spending bill put out by congressional leaders late Tuesday night was a significant change to the landmark 2010 Dodd-Frank financial reform law.
The Democratic-led Senate has resisted substantive changes to the law, which with Obamacare has been one of President Obama’s signature legislative initiatives, but it appears that resistance may be weakening ahead of the GOP takeover of the Senate in January.
The notable change is language that would alter an arcane but important Dodd-Frank requirement that prohibits bank entities that engage in some kinds of derivatives trading from accessing federal deposit insurance and emergency lending from the Federal Reserve.
Some kinds of derivatives, which are bets on the value of an underlying asset, helped exacerbate the financial crisis of 2008, mostly notably in the case of the insurer American International Group’s derivative trades with Wall Street banks.
The spending bill released Tuesday night would loosen the terms of the prohibition of derivatives trading by bank branches supported by the federal safety net.
The change had been sought by Wall Street banks, which also have had some success in lobbying regulatory agencies to delay or limit the reach of the rules, known as the swaps push-out, as it has been written.
Lobbyists and consumer groups will have before Thursday to read through the spending bill.
Also included in the omnibus was a more technical fix to the Dodd-Frank regulation of derivatives trading by businesses that use the financial instruments to hedge risks.
The bill includes a provision meant to exempt many non-financial businesses from the Dodd-Frank curbs on engaging in derivatives trades unless those trades are made through a regulated clearinghouse. House Appropriations Committee Chairman Hal Rogers said that the language was meant to “protect farmers and other commodity producers from having to put down excessive collateral to get a loan, expand their businesses, and hedge their production.”
Lawmakers mostly agree that the rules were never meant to affect non-bank “end users” such as farmers, and bills that would have rolled back the rules for those business have enjoyed strong bipartisan majorities in both the Senate and House.
Nevertheless, the inclusion of the changes for end users in the spending bill was the subject of some controversy Tuesday, after lawmakers clashed over the process leading into the evening.
Maxine Waters, the ranking Democrat on the House Financial Services Committee, argued that it was a process foul for committee Chairman Jeb Hensarling to include the changes as part of negotiations over the reauthorization of an unrelated terrorism insurance bill, which did not end up in the spending bill. Facing off against Waters at a Rules Committee hearing, Hensarling fired back that she was being “disingenuous” and claimed the change was initially included by Senate Democrats.
The bill also included increased funding for two of the agencies tasked by Dodd-Frank with additional regulatory responsibilities, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
