US House eases restrictions on derivatives trades

Last Updated: Friday, December 11, 2009 - 09:29

Washington: A bipartisan coalition in the House voted late Thursday to make it easier for corporations to engage in complex derivatives trades without government restrictions, eroding the reach of proposed regulations to govern Wall Street.

The legislation imposes new regulations on derivatives, aiming to prevent manipulation in and bring transparency to a USD 600 trillion global market. But an amendment by New York Democrat Scott Murphy, adopted 304-124 Thursday night, exempted businesses that trade in derivatives, not as financial speculators, but to hedge against market fluctuations such as currency rates or gasoline prices. The amendment also provided an exception for businesses that are not considered too big to be a risk to the financial system.

A Democratic effort to make more companies subject to derivatives regulation failed 279-150.

The House debate comes more than a year after the downfall of Wall Street banking house Lehman Brothers Holdings Inc panicked the financial markets and forced an unprecedented intervention by the federal government. The Senate is expected to consider a bill next year.

The broader legislation hits big banks hardest, a response to public anger at the notion that some institutions had grown too big to fail and pushed the nation`s financial system to the brink of collapse.

It would create a Financial Services Oversight Council to monitor the financial system and watch for future threats. Large, interconnected firms would have to put more money into their reserves. They would have to feed a $150 billion fund to cover the costs of dismantling a failing competitor. And even if healthy, they could be forced to downsize if they are deemed a grave threat to the economy.

"American families will no longer be at the mercy of the Wall Street in terms of their jobs, their homes, their pension security, the education of their children," said Pelosi, D-Calif.

Though not major setbacks, the votes illustrated the difficulties facing House Financial Services Committee Chairman Barney Frank and the Obama administration as they seek to pass legislation aimed at preventing a recurrence of last year`s Wall Street crisis.

Key votes loomed ahead, with a final vote on the sweeping legislation scheduled Friday.

Democrats hoped to fend off an amendment Friday that would eliminate the creation of an independent Consumer Finance Protection Agency. The agency is a central element of the Democrats` legislation and the Obama administration`s proposed regulatory changes.

The amendment was offered by Rep Walt Minnick, a conservative Democrat from Idaho, and seven other centrist Democrats. The US Chamber of Commerce, which has been running national television ads against the creation of a consumer agency, said it would base its support for lawmakers in next year`s elections, in part, on how they voted on the amendment.

"I think we`re going to beat the Minnick amendment, but it`s a real test," Frank, D-Mass., said Thursday. Creating a consumer agency is a top priority for consumer groups and for labor organizations such as the AFL-CIO.

Democratic leaders also were pushing changes that would add further restrictions on banks and financial institutions. One, vigorously opposed by banks, would let bankruptcy judges rewrite mortgages to lower homeowners` monthly payments.

A coalition of banking organizations on Thursday sent lawmakers a letter urging them to vote against the amendment. The House previously passed bankruptcy-mortgage legislation, but it failed in the Senate.

Bureau Report

First Published: Friday, December 11, 2009 - 09:29

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