U.S. Senators Debbie Stabenow (D-MI) and Tim Johnson (D-SD) and U.S. Representatives Frank Lucas (R-OK) and Spencer Bachus (R-AL) sent a letter to U.S. Department of Treasury Secretary Timothy Geithner, Federal Reserve Board Chairman Ben Bernanke, U.S. Commodity Futures Trading Commission Secretary Gary Gensler, and U.S. Securities and Exchange Commission Mary Schapiro yesterday urging them to provide an exemption from margin requirements for end-user transactions.
As the Chairs of the principal Congressional committees overseeing the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, they stressed the need to limit regulatory burdens that could have the unintended effect of driving up costs for end-users increasing costs for consumers and diverting capital from opportunities to promote economic growth and job creation.
More than 38 million Americans work at companies that use derivatives to legitimately manage their business risks. As Chairwoman of the Senate Agriculture Committee, I understand the critical role derivatives play in providing farmers, agribusinesses and manufacturers with risk management tools to deal with market volatility so they have the certainty to grow and create jobs. While new protections are necessary to prevent future government bailouts and economic meltdowns, we must see to it that businesses using derivatives to manage risk aren’t being burdened with overreaching and unnecessary regulations. It’s critical to protect end-users to continue bolstering the economic recovery.”- Sen. Debbie Stabenow, Chairwoman of the Senate Committee on Agriculture, Nutrition and Forestry
"Dodd-Frank seeks to improve transparency and accountability in our derivatives market while protecting end-users who had nothing to do with the financial crisis. South Dakota farmers who use derivatives to lock in stable prices for their harvest or rural electric cooperatives that use swaps to reduce oil price volatility for consumers need to be shielded from paying higher costs. US regulators must carefully coordinate their rulemakings with international reform efforts to avoid placing American businesses at a competitive disadvantage that could send good paying American jobs overseas." - Sen. Tim Johnson, Chairman, Senate Committee on Banking, Housing, and Urban Affairs
"An exemption for end-users means more cash working for the economy. Right now, we need to do everything we can to ensure the economy is growing and creating jobs for Americans across the country." - Rep. Frank Lucas, Chairman of the House Committee Agriculture
“End users of derivatives did not cause the financial crisis. They were among its victims. Although the 2,300-page Dodd-Frank Act was promoted as being directed at Wall Street, as we are coming to understand more clearly, it is the end users of derivatives who will bear so much of the regulatory brunt of this law. As a result, hundreds of American companies could take their capital and jobs elsewhere.” - Rep. Spencer Bachus, Chairman of the House Committee on Financial Services
The text of the letter is below and can be accessed here: http://agriculture.house.gov/pdf/letters/HouseSenateEndUserLetter.pdf
April 6, 2011
Dear Chairmen Gensler, Schapiro, Bernanke and Secretary Geithner:
We appreciate the work you and your staffs have undertaken in drafting rules to implement Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) (“the Act”). While we have been encouraged by many of your comments regarding capital and margin requirements, we write to reiterate the critical importance of establishing a regulatory regime that will not create economic disincentives for end-users to access the derivatives markets.
We write as the Chairmen of the principal Congressional committees overseeing the implementation of the Act, to restate our continued support for the comments expressed in the June 10, 2010 letter from former Senators Christopher Dodd and Blanche Lincoln (see attached). Specifically, regulators should exempt end-users from margin requirements and seek to limit other regulatory burdens that could have the unintended effect of driving up costs for end users and increasing systemic risk for our economy.
Efficient access to derivatives enables companies to increase certainty in their businesses, and consumers benefit from companies’ prudent risk management activities through lower volatility in the prices of day-to-day goods and services, such as food, electricity and transportation. If end-user transactions are subject to margin requirements, costs for consumers could increase, and end-users may divert working capital from activities that promote economic growth and job creation.
It is also essential that you continue to coordinate with each other as you write rules to implement Title VII, especially on rules that will impact end-user costs. Interagency coordination consistent with the spirit and provisions of the Act is critical to create a streamlined regulatory framework that reduces unnecessary expenses, maximizes certainty for companies and minimizes regulatory arbitrage.
Additionally, as required by the Act, our new derivatives rules must be closely coordinated with international efforts to regulate derivatives. Undoubtedly, foreign markets are closely watching how U.S. regulators are implementing Title VII, including the protections for end-user companies. As American businesses seek to compete around the globe, our markets must not be put at a competitive disadvantage.
Title VII of the Act was designed to establish a robust new regulatory regime for derivatives, while maintaining highly-liquid and well-functioning markets that will fuel economic growth and job creation. As your agencies progress in the rulemaking process, we urge you to craft rules that carefully strike this important balance.
U.S. Senator Debbie Stabenow, Chairman, Senate Committee on Agriculture, Nutrition and Forestry
U.S. Senator Tim Johnson, Chairman, Senate Committee on Banking, Housing, and Urban Affairs
U.S. Representative Frank Lucas, Chairman, House Committee on Agriculture
U.S. Represenative Spencer Bachus, Chairman, House Committee on Financial Services