Changes to Dodd-Frank Derivatives Provisions?

By Stephen Barlas
May 1, 2018

A broad range of nonfinancial companies are pressing Congress to soften some of the derivatives rules U.S. federal agencies have adopted, or are considering adopting, as a result of the Dodd-Frank law. Eleven separate bills unwinding some of Dodd-Frank’s provisions regarding derivatives are being considered by the House Financial Services Committee.


Thomas C. Deas, Jr., chairman of the National Association of Corporate Treasurers, told the House Capital Markets, Securities, and Investment subcommittee at hearings on February 14, 2018, that federal financial regulatory agencies have continued to issue rules that have resulted in increased costs for end users’ risk mitigation activities.


One of the bills the subcommittee is considering, for example, would narrow Dodd-Frank’s broad definition of “financial entity” by including a de minimis threshold. Financial entities are subject to the full range of regulatory requirements, such as having to clear their over-the-counter (OTC) derivatives at clearinghouses, trade their OTC derivatives on regulated exchanges, and exchange margin on their uncleared OTC derivatives transactions. Another proposed bill would alleviate the need for banks to calculate credit value adjustments on capital the banks are forced to hold when they sell a derivative, a cost the bank passed on to the end user, increasing the company’s costs.


The bills could have some Democratic support, which would be critical for any legislation to pass in the Senate. Rep. Brad Sherman (D.-Calif.), the second-ranking Democrat on the House Capital Markets, Securities, and Investment subcommittee, said at the hearings that he is open to changes.


Stephen Barlas has covered Washington, D.C., for trade and professional magazines since 1981 and since 1984 for Strategic Finance and its predecessor Management Accounting. You can reach him at sbarlas@verizon.net.
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