Treatment of Affiliate Transactions Under the Dodd-Frank Wall Street Reform and Consumer Protection Act

Floor Speech

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Ms. MOORE. Thank you, Ms. Fudge.

I would, first of all, like to thank Chairman Bachus and Ranking Member Frank and, on the subcommittee, Chairman Garrett and Ranking Member Waters, Mr. Stivers and Ms. Fudge from the Ag Committee, for their leadership that kept the bill moving; other members of the Financial Services Committee--Mr. Perlmutter, Mr. Himes, Mr. Miller, Mr. Dold, Mr. Gibson, among others--for all of their input on this legislation.

This is a bill--and some people here today, Mr. Speaker, may be surprised to know that it enjoys bipartisan support because it ensures, number one, the vitality of U.S. and global commerce by exempting interaffiliate swaps, or those swap transactions used internally by companies in all our districts, from clearing, margin, and execution requirements. But H.R. 2779 also preserves the all-important reforms of the over-the-counter swap markets enacted as part of Dodd-Frank while providing swap end users that exemption that is responsive to their legitimate business needs for flexibility, risk management, and price stability.

Now, in Congress, 4 years is an eternity; but I have not forgotten the 2008 financial crisis and the human hardship that it caused and continues to cause in Milwaukee and all across America. The work continues, and this bill is a part of that.

I can tell you, Mr. Speaker, I was proud to be part of the effort that produced Dodd-Frank, legislation that will improve accountability and transparency in the financial markets, including the pre-Dodd-Frank unregulated over-the-counter derivatives markets which played a central role in the crisis. However, I did not vote for Dodd-Frank as retribution against Wall Street or for any punitive means. I voted for Dodd-Frank to enhance the function and transparency of markets and to promote prosperity for Americans going forward. For that reason, I am happy to support H.R. 2779.

A little bit of background about the critical need the bill addresses and how bipartisan collaboration produced the final bill.

Now, swaps are versatile financial tools that have become instrumental for the management of risk and for allowing companies to more efficiently transact in global markets. Swaps aid companies to hedge and to mitigate things like interest rate and currency exposure, but also more exotic risks associated with unique markets and businesses. H.R. 2779 clarifies that end users, not investors, have the ability to hedge risk for legitimate business purposes.

Now, the flip side of swaps are that they may also be used to acquire risk by investors. In that capacity, swaps allocate risk to parties that want to and are able to bear the risk. However, in the unregulated pre-Dodd-Frank world, over-the-counter swaps and derivatives lacked transparency and allowed risk to pool and gather in ways that would eventually help drive the financial crisis and create systemic risk.

Dodd-Frank duly addressed the lessons of the financial crisis by pushing as many product types as possible to be centrally cleared and traded on electronic exchanges or other trading facilities, subjecting these swap dealers and major market participants to capital and to margin requirements, and requiring the public reporting of transaction and pricing data of both cleared and uncleared swaps.

H.R. 2779 does not disturb any of those important reforms accomplished in Dodd-Frank. Interaffiliate swaps are simply transactions within a single group of affiliated entities, in other words, meaning entities that prepare financial statements on a consolidated basis. Therefore, interaffiliated swaps do not add or subtract from overall systemic risk. Therefore, H.R. 2779 simply builds on my original intent of voting for Dodd-Frank--the promotion of U.S. prosperity going forward.

Through the process of drafting the bill, a number of revisions were adopted, thanks to the thoughtful input of many of our colleagues. The definition of ``control,'' which is central to the issues of a legitimate interaffiliate transaction, was clarified. Anti-evasion measures were added so that the exemption would not lead to abuse. Language was adopted that made sure Fed authority over interaffiliate banks was preserved as was language that clearly and explicitly states that the bill does nothing to disturb the existing regulatory regime for insurance companies.

This is a good bill, Mr. Speaker. It has the backing of Republicans, Democrats, and industry end users of derivatives. I urge all of my colleagues to back this legislation, and I yield back the balance of my time.

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