WASHINGTON — A bill by House Republicans that would delay implementation of derivatives rules has sparked a firestorm of controversy, with officials and lawmakers trading jabs over the pace of regulatory reform.
The bill, introduced by four key Republicans late last week, would grant the Securities and Exchange Commission and the Commodity Futures Trading Commission an 18-month reprieve — until as late as December 2012 — for issuing derivatives rules required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
It would also require both agencies, before issuing any final rules, to hold public hearings and take testimony from market participants about the compliance burdens of the proposed regulations.
The agencies would be required to weigh this testimony when preparing cost-benefit analyses of any rules they propose.
GOP lawmakers who introduced the bill, including Rep. Spencer Bachus of Alabama, chairman of the House Financial Services Committee, and Rep. Frank Lucas of Oklahoma, chairman of the House Agriculture Committee, cited two concerns: getting the rules “right from the start,” as Bachus said, and reducing the costs of regulatory compliance.
But the bill has spawned a high-profile public dispute, with officials from the Treasury Department to the CFTC weighing in to defend regulators and Republicans issuing counterattacks, saying Dodd-Frank is harming small businesses and stifling job growth.
The spat erupted in the midst of Congress’ Easter recess, as some Democrats have raised concerns that Republicans — who control the House but not the Senate and cannot muster the votes to repeal Dodd-Frank — are trying to dismantle the law by gutting regulators’ budgets and slowing down rulemaking.
“The strategy of some critics to defund enforcement or implementation is part of a larger strategy to undermine the statute and weaken the comprehensive reforms it puts in place,” deputy Treasury secretary Neal Wolin said in a speech Tuesday. “We cannot afford to let that happen.”
In a statement issued in response, Bachus said: “All of us know that on the highway 'speed kills.’ Speed can also kill jobs when Washington rushes sweeping regulations into place without giving the public adequate time to comment.”
Another key House Republican launched a broadside as well.
“The federal government needs to get out of the way so that businesses can start hiring again and put Americans back to work,” said Rep. Patrick McHenry, R-N.C., who chairs the House Oversight Committee’s panel on the Troubled Asset Relief Program, financial services, and bailouts of public and private programs.
Late last week, a CFTC commissioner issued a rare public statement blasting the Bachus bill, saying it was unnecessary, and that Dodd-Frank reforms are just as important now as they were last year, when the law was enacted.
“Hundreds of trillions of dollars in trading remain completely unregulated,” said Bart Chilton, who was nominated by President George W. Bush and re-nominated by President Obama in 2009. “It is exactly this 'dark’ trading that helped lead to a hideous bailout paid for by taxpayers.”
In an interview Tuesday, Chilton said he agrees with Bachus and Lucas that regulators need to be cautious and get it right.
At the same time, he suggested some lawmakers are “trying to run out the political clock,” hoping Washington’s political climate might change.
“We’re only in the rulemaking phase right now,” Chilton said. “This is a regulatory process and folks need to give it a chance to work.”
A report by the CFTC’s inspector general, a copy of which was obtained by Dow Jones, rapped the agency for failing to undertake robust cost-benefit analyses of the new regulations.
According to Dow Jones, Reps. Lucas and K. Michael Conaway, R.-Texas, another of the bill’s sponsors, requested the IG’s report.
On Monday, CFTC chairman Gary Gensler released a statement saying the agency is “working deliberatively” to promulgate rules required by Dodd-Frank.
John Nester, a spokesman for the SEC, declined to comment on the Bachus bill.
However, he noted that the CFTC and SEC have scheduled a joint roundtable next month to seek public comments about setting a timetable for Dodd-Frank rulemaking, including when new rules will become effective.
The roundtable reflects “an emphasis on getting the rules right,” he said.
Under Dodd-Frank, the CFTC has authority to regulate swaps, swap dealers and major swap participants, including many muni bond-related swaps.
The SEC has regulatory oversight over security-based swaps, security-based swap dealers, and major security-based swap participants. Security-based swaps are defined so narrowly that they would not include those that are muni-related.
Meanwhile, derivatives market participants applauded the rulemaking slowdown, saying it makes sense.
“It’s a great relief,” said Michael Marz, vice chairman of First Southwest Co. in Dallas. “I think people on the Hill just listened to the fact that Dodd-Frank passage was broad and sweeping and there were laws written without definitions.”
Another echoed lawmakers who sponsored the bill.
“I think this recognizes the reach of [Dodd-Frank] and that it needs to be done properly,” said Samuel Gruer, managing director of Cityview Capital Solutions LLC in Millburn, N.J.