Bloomberg News

U.S. Lawmakers Question Overseas Reach of Dodd-Frank Swap Rules

October 04, 2011

Oct. 4 (Bloomberg) -- U.S. regulators’ proposed Dodd-Frank Act rules for the $601 trillion swaps market may clash with the intent of Congress because of their reach to foreign subsidiaries of U.S. financial firms, according to the top two Democratic lawmakers on financial issues.

“Given the global nature of this market, U.S. regulators should avoid creating opportunities for international regulatory arbitrage that could increase systemic risk and reduce the competitiveness of U.S. firms abroad,” Senator Tim Johnson, chairman of the Senate Banking Committee, and Representative Barney Frank, the top Democrat on the House Financial Services Committee, wrote in a letter today.

The letter was sent to the Commodity Futures Trading Commission, Federal Reserve, Securities and Exchange Commission and Federal Deposit Insurance Corp.

“We are concerned that the proposed imposition of margin requirements, in addition to provisions related to clearing, trading, registration, and the treatment of foreign subsidiaries of U.S. institutions, all raise questions about consistency with congressional intent,” Johnson, of South Dakota, and Frank, of Massachusetts, said in the letter.

Proposed regulations imposing margin requirements to reduce trading risks will “damage the competitiveness” of foreign- based businesses of U.S. banks compared with their overseas rivals, lawyers for six banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley told regulators in a June 29 letter.

The CFTC and SEC are leading U.S. efforts to write new derivatives regulations after largely unregulated trades helped fuel the 2008 credit crisis. Dodd-Frank aims to reduce risk and boost transparency by having most swaps guaranteed by central clearinghouses and traded on exchanges or other venues.

--With assistance from Phil Mattingly in Washington. Editors: Lawrence Roberts, Maura Reynolds

To contact the reporter on this story: Silla Brush in Washington at

To contact the editor responsible for this story: Lawrence Roberts at

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