House Report 113-229, Part 1 - 113th Congress (2013-2014)
September 25, 2013, As Reported by the Financial Services Committee

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House Report 113-229 - SWAPS REGULATORY IMPROVEMENT ACT




[House Report 113-229]
[From the U.S. Government Printing Office]


113th Congress                                            Rept. 113-229
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
                    SWAPS REGULATORY IMPROVEMENT ACT

                                _______
                                

 September 25, 2013.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

       Mr. Hensarling, from the Committee on Financial Services,
                        submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 992]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 992) to amend provisions in section 716 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act 
relating to Federal assistance for swaps entities, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                          Purpose and Summary

    H.R. 992, the Swaps Regulatory Improvement Act, amends 
Section 716 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. No. 111-203) (the ``Dodd-Frank Act'') 
to allow covered depository institutions to trade swaps (other 
than certain structured finance swaps) with their affiliates. 
Under the legislation, the only swaps that covered depository 
institutions must spin out to separately capitalized entities 
are structured finance swaps unless they are undertaken for 
hedging or risk management purposes or expressly permitted by 
prudential regulators to take place in a covered depository 
institution. The bill also ensures that uninsured U.S. branches 
and agencies of foreign banks are treated the same as insured 
depository institutions by defining both groups as ``covered 
depository institutions.
    These amendments to the Dodd-Frank Act mitigate the 
potential negative impacts of Section 716. If Section 716 is 
left unchanged, it could weaken the U.S. financial system and 
place U.S. financial institutions at a competitive disadvantage 
to their foreign counterparts.

                  Background and Need for Legislation

    Numerous participants in a variety of markets and 
industries use derivatives on a daily basis to hedge risk. Most 
types of derivatives were not the cause of the financial 
crisis. Swaps based on currencies, interest rates, agricultural 
products and equities performed as expected. Despite the 
irrelevance of most swaps to the financial crisis, Section 716 
of the Dodd-Frank Act required financial institutions to 
``push-out'' or ``spin-off'' all of their swaps, with 
exemptions for interest rate swaps and swaps that reference 
currencies, bullion metals, loans or bank-eligible debt 
securities, into a separate company. This requirement is too 
broad and over-inclusive. Rep. Randy Hultgren's bill, H.R. 992, 
changes the law so that the spin-off requirement applies only 
to the most problematic and potentially risky swaps, such as 
those whose value derived from the poorly rated and 
underwritten mortgages that were at the heart of the financial 
crisis. This legislation ensures that the U.S. financial system 
is not weakened and that U.S. financial institutions are not 
placed at a competitive disadvantage against their foreign 
counterparts.
    Financial reform should not increase customer costs. 
Manufacturers, farmers, and industrial companies--all of whom 
use swaps daily in benign and economically beneficial ways--did 
not cause the financial crisis. Yet the Dodd-Frank Act sweeps 
in thousands of companies that had nothing to do with the 
financial crisis and subjects them to increased costs and 
additional layers of regulation. As currently constructed, 
section 716 of the Dodd-Frank Act would limit the types of 
risk-reducing products a bank could provide to a customer to 
protect its business from market disruptions. If Congress does 
nothing to amend section 716, customers would lose and the 
banks would win. Bank customers would have to create expensive 
and new business and legal relationships with a new banking 
entity to conduct most of their risk-reducing activities, 
thereby diverting funds that could otherwise be used to create 
jobs, expand their businesses and help the economy.
    Section 716 of Dodd-Frank has prompted objections from 
Federal Reserve Board Chairman Ben Bernanke, former FDIC 
Chairman Sheila Bair, and economists such as Mark Zandi who 
said ``section 716 would create significant complications and 
counter the efforts to resolve [large financial] firms in an 
orderly manner.''
    Left unamended, section 716 could result in at least two 
negative consequences for the U.S. financial system and U.S. 
financial institutions. First, section 716 may make the U.S. 
financial system less stable by forcing swap trading into the 
unregulated shadow banking system. As Chairman Bernanke has 
pointed out, section 716 ``would make the U.S. financial system 
less resilient and more susceptible to systemic risk'' because 
``forcing [commercial and hedging activities] out of insured 
depository institutions would weaken both financial stability 
and strong prudential regulation.'' Second, section 716 may 
place U.S. financial institutions at a significant competitive 
disadvantage against their foreign counterparts because foreign 
jurisdictions do not plan to adopt a provision similar to 
section 716 in their ongoing efforts to reform the global 
derivatives marketplace.
    In light of the potential negative consequences, former 
Federal Reserve Board Chairman Paul Volcker and Chairman Bair 
both expressed reservations about section 716 during the Dodd-
Frank House-Senate Conference Committee's deliberations. Mr. 
Volcker stated that the ``provision of derivatives by 
commercial banks to their customers in the usual course of a 
banking relationship should not be prohibited.'' Chairman Bair 
stated that'' by concentrating the activity in an affiliate of 
the insured bank, we could end up with less and lower quality 
capital, less information and oversight for the FDIC, and 
potentially less support for the insured bank in a time of 
crisis,'' and that ``one unintended outcome of this provision 
would be weakened, not strengthened, protection of the insured 
bank and the Deposit Insurance Fund.''

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing on H.R. 992 on April 11, 2013.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
May 7, 2013, and ordered H.R. 992 to be reported favorably to 
the House by a recorded vote of 53 yeas to 6 nays (Record vote 
no. FC-14), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto.
    1. A motion by Chairman Hensarling to report the bill (H.R. 
992) to the House with a favorable recommendation was agreed to 
by a record vote of 53 yeas and 6 nays (Record vote no. FC-14).

                                              RECORD VOTE NO. FC-14
----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling.................        X   ........  .........  Ms. Waters.......  ........        X   .........
Mr. Gary G. Miller (CA)........        X   ........  .........  Mrs. Maloney (NY)        X   ........  .........
Mr. Bachus.....................        X   ........  .........  Ms. Velazquez....  ........        X   .........
Mr. King (NY)..................        X   ........  .........  Mr. Watt.........        X   ........  .........
Mr. Royce......................        X   ........  .........  Mr. Sherman......        X   ........  .........
Mr. Lucas......................        X   ........  .........  Mr. Meeks........        X   ........  .........
Mrs. Capito....................        X   ........  .........  Mr. Capuano......  ........        X   .........
Mr. Garrett....................        X   ........  .........  Mr. Hinojosa.....        X   ........  .........
Mr. Neugebauer.................        X   ........  .........  Mr. Clay.........        X   ........  .........
Mr. McHenry....................        X   ........  .........  Mrs. McCarthy            X   ........  .........
                                                                 (NY).
Mr. Campbell...................        X   ........  .........  Mr. Lynch........  ........        X   .........
Mrs. Bachmann..................        X   ........  .........  Mr. David Scott          X   ........  .........
                                                                 (GA).
Mr. McCarthy (CA)..............        X   ........  .........  Mr. Al Green (TX)  ........        X   .........
Mr. Pearce.....................  ........  ........  .........  Mr. Cleaver......        X   ........  .........
Mr. Posey......................        X   ........  .........  Ms. Moore........        X   ........  .........
Mr. Fitzpatrick................        X   ........  .........  Mr. Ellison......  ........        X   .........
Mr. Westmoreland...............  ........  ........  .........  Mr. Perlmutter...        X   ........  .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Himes........        X   ........  .........
Mr. Huizenga (MI)..............        X   ........  .........  Mr. Peters (MI)..        X   ........  .........
Mr. Duffy......................        X   ........  .........  Mr. Carney.......        X   ........  .........
Mr. Hurt.......................        X   ........  .........  Ms. Sewell (AL)..        X   ........  .........
Mr. Grimm......................        X   ........  .........  Mr. Foster.......        X   ........  .........
Mr. Stivers....................        X   ........  .........  Mr. Kildee.......        X   ........  .........
Mr. Fincher....................        X   ........  .........  Mr. Murphy (FL)..        X   ........  .........
Mr. Stutzman...................        X   ........  .........  Mr. Delaney......        X   ........  .........
Mr. Mulvaney...................        X   ........  .........  Ms. Sinema.......        X   ........  .........
Mr. Hultgren...................        X   ........  .........  Mrs. Beatty......        X   ........  .........
Mr. Ross.......................        X   ........  .........  Mr. Heck (WA)....        X   ........  .........
Mr. Pittenger..................        X   ........  .........
Mrs. Wagner....................        X   ........  .........
Mr. Barr.......................        X   ........  .........
Mr. Cotton.....................        X   ........  .........
Mr. Rothfus....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 992 
will change the types of swaps that financial institutions are 
required to spin off to separately capitalized entities.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 20, 2013.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 992, the Swaps 
Regulatory Improvement Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Daniel 
Hoople and Barbara Edwards.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 992--Swaps Regulatory Improvement Act

    H.R. 992 would allow certain financial firms to retain 
financial portfolios containing swaps while remaining eligible 
for assistance from the Federal Reserve and Federal Deposit 
Insurance Corporation (FDIC). A swap is a contract between two 
parties to exchange payments based on the price of an 
underlying asset or change in interest, exchange, or other 
reference rate. Swaps can be used to hedge or mitigate certain 
risks associated with a firm's traditional activities, such as 
interest rate risk, or to speculate based on expected changes 
in prices and rates.
    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 10 years would not be 
significant.
    Under current law, federal assistance is not available to 
any swaps dealer or major swaps participant registered with the 
Securities and Exchange Commission or the Commodity Futures 
Trading Commission. Federal assistance includes access to any 
Federal Reserve credit facility and discount window (with some 
exceptions) and FDIC deposit insurance and guarantees. This 
prohibition does not apply to a major swaps participant that is 
an insured depository institution (DI) or an IDI acting as a 
swaps dealer for hedging purposes or for swaps involving bank-
permissible securities. (Such swaps include those that 
reference interest rates, currencies, government securities, 
and precious metals. Examples of non-permissible swaps include 
equity swaps, commodity and agriculture swaps, energy swaps, 
and metal swaps excluding gold and silver.) Under current law, 
IDIs that do not meet these exceptions must ``push out'' their 
swaps portfolio to a separately capitalized affiliate if the 
firm is part of a financial holding company, or cease these 
activities altogether.
    Similar to the exemption currently granted to IDIs, H.R. 
992 would allow uninsured U.S. branches or agencies of a 
foreign bank to engage in certain permissible swaps activities 
and to push out others to an affiliate without jeopardizing 
access to federal assistance. In addition, the legislation 
would expand permissible swaps activities by excluding only 
swaps based on asset-backed securities that are unregulated or 
not of a credit quality established by regulation.
    Enacting this legislation could affect direct spending and 
revenues if a change in swaps activity affects the financial 
stability of an IDI or other entity with access to assistance 
from the Federal Reserve. Because current law only affects IDIs 
that are swaps dealers and a small percentage of contracts, CBO 
estimates that any changes to the net cash flows of either 
agency would be insignificant for the next 10 years.
    H.R. 992 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    On April 5, 2013, CBO transmitted a cost estimate for H.R. 
992, the Swaps Regulatory Improvement Act, as ordered reported 
by the House Committee on Agriculture, on March 20, 2013. The 
two versions of the legislation are identical and the CBO cost 
estimates are the same.
    The CBO staff contacts for this estimate are Daniel Hoople 
and Barbara Edwards. The estimate was approved by Theresa 
Gullo, Deputy Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 992 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), 
the Committee states that no provision of H.R. 992 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013), 
the Committee states that H.R. 992 requires no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    The short title of the Act is the ``Swaps Regulatory 
Improvement Act.''

Section 2. Reform of prohibition on swap activity assistance

    This section defines a `covered depository institution' as 
an insured depository institution or a United States uninsured 
branch or agency of a foreign bank that has a prudential 
regulator.
    This section also replaces the term `insured depository 
institution' in Section 716 with the term `covered depository 
institution.'
    This section provides that covered depository institutions 
can engage in to engage in all swap and security-based swap 
activities except structured finance swaps that are neither (1) 
undertaken for hedging or risk management purposes nor (2) 
expressly allowed by prudential regulators to take place in a 
covered depository institution.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

           *       *       *       *       *       *       *



TITLE VII--WALL STREET TRANSPARENCY AND ACCOUNTABILITY

           *       *       *       *       *       *       *


        Subtitle A--Regulation of Over-the-Counter Swaps Markets

PART I--REGULATORY AUTHORITY

           *       *       *       *       *       *       *


SEC. 716. PROHIBITION AGAINST FEDERAL GOVERNMENT BAILOUTS OF SWAPS 
                    ENTITIES.

  (a) * * *
  (b) Definitions.--In this section:
          (1) * * *
          (2) Swaps entity.--
                  (A) * * *
                  (B) Exclusion.--The term ``swaps entity'' 
                does not include any major swap participant or 
                major security-based swap participant that is 
                an [insured depository institution] covered 
                depository institution.
          (3) Covered depository institution.--The term 
        ``covered depository institution'' means--
                  (A) an insured depository institution, as 
                that term is defined in section 3 of the 
                Federal Deposit Insurance Act (12 U.S.C. 1813); 
                and
                  (B) a United States uninsured branch or 
                agency of a foreign bank.
  (c) Affiliates of [Insured] Covered Depository 
Institutions.--The prohibition on Federal assistance contained 
in subsection (a) does not apply to and shall not prevent [an 
insured] a covered depository institution from having or 
establishing an affiliate which is a swaps entity, as long as 
[such insured] such covered depository institution is part of a 
bank holding company, [or savings and loan holding company] 
savings and loan holding company, or foreign banking 
organization (as such term is defined under Regulation K of the 
Board of Governors of the Federal Reserve System (12 C.F.R. 
211.21(o))), that is supervised by the Federal Reserve and such 
swaps entity affiliate complies with sections 23A and 23B of 
the Federal Reserve Act and such other requirements as the 
Commodity Futures Trading Commission or the Securities Exchange 
Commission, as appropriate, and the Board of Governors of the 
Federal Reserve System, may determine to be necessary and 
appropriate.
  [(d) Only Bona Fide Hedging and Traditional Bank Activities 
Permitted.--The prohibition in subsection (a) shall apply to 
any insured depository institution unless the insured 
depository institution limits its swap or security-based swap 
activities to:
          [(1) Hedging and other similar risk mitigating 
        activities directly related to the insured depository 
        institution's activities.
          [(2) Acting as a swaps entity for swaps or security-
        based swaps involving rates or reference assets that 
        are permissible for investment by a national bank under 
        the paragraph designated as ``Seventh.'' of section 
        5136 of the Revised Statutes of the United States (12 
        U.S.C. 24), other than as described in paragraph (3).
          [(3) Limitation on credit default swaps.--Acting as a 
        swaps entity for credit default swaps, including swaps 
        or security-based swaps referencing the credit risk of 
        asset-backed securities as defined in section 3(a)(77) 
        of the Securities Exchange Act of 1934 (15 U.S.C. 
        78c(a)(77)) (as amended by this Act) shall not be 
        considered a bank permissible activity for purposes of 
        subsection (d)(2) unless such swaps or security-based 
        swaps are cleared by a derivatives clearing 
        organization (as such term is defined in section la of 
        the Commodity Exchange Act (7 U.S.C. la)) or a clearing 
        agency (as such term is defined in section 3 of the 
        Securities Exchange Act (15 U.S.C. 78c)) that is 
        registered, or exempt from registration, as a 
        derivatives clearing organization under the Commodity 
        Exchange Act or as a clearing agency under the 
        Securities Exchange Act, respectively.]
  (d) Only Bona Fide Hedging and Traditional Bank Activities 
Permitted.--
          (1) In general.--The prohibition in subsection (a) 
        shall not apply to any covered depository institution 
        that limits its swap and security-based swap activities 
        to the following:
                  (A) Hedging and other similar risk mitigation 
                activities.--Hedging and other similar risk 
                mitigating activities directly related to the 
                covered depository institution's activities.
                  (B) Non-structured finance swap activities.--
                Acting as a swaps entity for swaps or security-
                based swaps other than a structured finance 
                swap.
                  (C) Certain structured finance swap 
                activities.--Acting as a swaps entity for swaps 
                or security-based swaps that are structured 
                finance swaps, if--
                          (i) such structured finance swaps are 
                        undertaken for hedging or risk 
                        management purposes; or
                          (ii) each asset-backed security 
                        underlying such structured finance 
                        swaps is of a credit quality and of a 
                        type or category with respect to which 
                        the prudential regulators have jointly 
                        adopted rules authorizing swap or 
                        security-based swap activity by covered 
                        depository institutions.
          (2) Definitions.--For purposes of this subsection:
                  (A) Structured finance swap.--The term 
                ``structured finance swap'' means a swap or 
                security-based swap based on an asset-backed 
                security (or group or index primarily comprised 
                of asset-backed securities).
                  (B) Asset-backed security.--The term ``asset-
                backed security'' has the meaning given such 
                term under section 3(a) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78c(a)).
  (e) Existing Swaps and Security-based Swaps.--The prohibition 
in subsection (a) shall only apply to swaps or security-based 
swaps entered into by [an insured] a covered depository 
institution after the end of the transition period described in 
subsection (f).
  (f) Transition Period.--To the extent [an insured depository] 
a covered depository institution qualifies as a ``swaps 
entity'' and would be subject to the Federal assistance 
prohibition in subsection (a), the appropriate Federal banking 
agency, after consulting with and considering the views of the 
Commodity Futures Trading Commission or the Securities Exchange 
Commission, as appropriate, shall permit [the insured 
depository] the covered depository institution up to 24 months 
to divest the swaps entity or cease the activities that require 
registration as a swaps entity. In establishing the appropriate 
transition period to effect such divestiture or cessation of 
activities, which may include making the swaps entity an 
affiliate of [the insured depository] the covered depository 
institution, the appropriate Federal banking agency shall take 
into account and make written findings regarding the potential 
impact of such divestiture or cessation of activities on [the 
insured depository] the covered depository institution's (1) 
mortgage lending, (2) small business lending, (3) job creation, 
and (4) capital formation versus the potential negative impact 
on insured depositors and the Deposit Insurance Fund of the 
Federal Deposit Insurance Corporation. The appropriate Federal 
banking agency may consider such other factors as may be 
appropriate. The appropriate Federal banking agency may place 
such conditions on [the insured depository] the covered 
depository institution's divestiture or ceasing of activities 
of the swaps entity as it deems necessary and appropriate. The 
transition period under this subsection may be extended by the 
appropriate Federal banking agency, after consultation with the 
Commodity Futures Trading Commission and the Securities and 
Exchange Commission, for a period of up to 1 additional year.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    Nearly three years after the adoption of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010, 
adoption of the derivatives and banking rules seems to have 
stalled. The so-called ``push-out rule,'' as section 716 of the 
Dodd-Frank Act is called, does not itself need implementing 
rules. Other rules under the Dodd-Frank Act, however, are very 
important to lowering the risks of bank derivatives and trading 
activities, particularly the ``Volcker Rule.'' The Volcker Rule 
is intended to draw a line between hedging and market making, 
on the one hand, and proprietary trading, on the other, and 
prohibits banks from engaging in proprietary trading. That rule 
remains stalled between the agencies, which has important 
implications for the activities that remain within a bank.
    A workable final version of the Volcker Rule will ensure 
that the regulators have the tools necessary to adequately 
oversee and examine the trading activities of banks and their 
affiliates. As we have seen from the delays in the finalization 
of the Volcker Rule, it is difficult to distinguish between 
hedging or market-making as opposed to proprietary trading. We 
are not comfortable expanding the kinds of swap activities that 
are permitted within depository institutions, including swaps 
related to commodities, equities, and certain structured 
finance swaps used for what we know to be the currently ill-
defined exception of ``hedging,'' when we still don't know the 
scope of the market-making and hedging exemptions that will be 
provided under the Volcker Rule.
    We saw the importance of this very clearly in JPMorgan 
Chase's ``London Whale,'' in which the bank lost more than $6 
billion in short order when its Chief Investment Office put on 
a large position in risky derivatives that was purportedly for 
the purpose of ``hedging,'' but that focused foremost on profit 
and would best be described as proprietary.
    Allowing commodity, equity, and certain other types of 
swaps to remain in banks, without knowing that those activities 
will be subject to adequate monitoring and oversight, is not 
something that we believe is appropriate at the present time. 
For that reason, until we see a final version of the Volcker 
Rule that allows the regulators to adequately monitor the 
trading of the banks and their affiliates, we will not support 
this bill.
    We are sensitive to the concern that under Section 716, 
foreign banks are not afforded the same hedging and market-
making exemptions that U.S. institutions receive, but this is 
something we believe that the Federal Reserve has the authority 
to address. It is important to ensure that we have a complete 
set of workable rules before we reverse some of the pieces that 
were done as part of the Dodd-Frank Act. While some supporters 
claim that H.R. 992 protects taxpayers by maintaining the push-
out for the riskiest swaps, obviously even these supporters see 
some benefit to continuing to push out at least some 
transactions.
    We also note that the Secretary of the Treasury has opposed 
this and other derivatives bills as the agencies continue to 
work on completing the rules required under the Dodd-Frank Act.
    For these reasons, we oppose H.R. 992.

                                   Maxine Waters.
                                   Ruben Hinojosa.
                                   Keith Ellison.
                                   Stephen F. Lynch.
                                   Michael E. Capuano.