H.R. 992: Swaps Regulatory Improvement Act

H.R. 992

Swaps Regulatory Improvement Act

Date
October 30, 2013 (113th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

On Wednesday, October 30, 2013, the House will consider H.R. 992, the Swaps Regulatory Improvement Act, under a rule. H.R. 992 was introduced by Representative Randy Hultgren (R-IL) on March 6, 2013 and has eight cosponsors. H.R. 992 was ordered to be favorably reported by the House Committee on Financial Services on May 7, 2013 by a vote of 53-6.[1] The Committee on Agriculture also favorably reported the bill on March 20, 2013 by a vote of 31-14-1.[2]

Bill Summary

H.R. 992 repeals most of Section 716 of the Dodd Frank Act, allowing covered depository institutions to trade swaps.  The legislation retains subsection (i), of Section 716, which prohibits the use of taxpayer funds to bail out swaps entities.  H.R. 992 maintains the spin off requirement for structured financial products, swaps that are problematic and risky and whose value derived from the poorly rated and underwritten mortgages that were at the heart of the financial crisis.   

Background

Derivative contracts are financial products, the value of which is related to an underlying asset.[1] Swaps are a type of derivative contract in which counter parties exchange cash based on an underlying rate or index or performance of an asset.  Derivatives are used to manage risk and have their origins in agriculture.[2]  According to the Committee on Financial Services, derivatives are used on a daily basis by American businesses to hedge risk, and most were not the underlying cause of the financial crisis.[3] However, Section 716 of the Dodd Frank Act requires insured financial institutions to “push out” all swap portfolios to a separately capitalized entity, with the exception of swaps related to interest rates, currencies, bullion metals, loans or bank-eligible debt securities.[4]  As currently constructed, Section 716 of the Dodd-Frank Act would limit the types of products a bank could provide to a customer to reduce their risk and protect their business from market disruptions.  Left unaddressed, this overbroad provision threatens the stability of the financial system and may place financial institutions at a competitive disadvantage against their foreign competitors.[5]

Cost

A CBO cost estimate finds that “enacting this legislation could affect direct spending and revenues; therefore, pay as you go procedures apply. However, CBO estimates that any impact on the net cash flows of the Federal Reserve or the FDIC over the next ten years would not be significant.”[1]

Additional Information

For questions or further information contact the Conference Policy Shop at 5-5107.