Date: 2013-06-12
Speaker: CAROLYN B. MALONEY (democrat)
Chamber: H
State: New York

I thank the gentlelady for yielding and for her leadership. Mr. Speaker. I rise today in opposition to H.R. 1256. the Swap Jurisdiction Certainty Act. I oppose this bill. as does the Obama administration. because it would fundamentally undermine DoddFranks derivatives reforms and would create a loophole big enough to drive an AIGsized truck through. Many of the derivatives that brought down AIG in 2008 were executed through one of its foreign branches. and many of the counterparties on those derivatives were European banks. These derivatives were a big factor in the AIG bailout that cost our taxpayers $182 billion and in the financial crisis that cost our economy well over $12 trillion. H.R. 1256 would require the CFTC and the SEC to issue a joint rule detailing how U.S. derivatives rules would apply to transactions between U.S. and foreign companies or individuals. However. the bill then requires the agencies to exempt foreign companies from U.S. rules unless both agencies determine that the derivatives rules in the foreign country are broadly equivalent to U.S. rules. a vague standard that would weaken both the CFTC and the SECs proposed rules governing crossborder transactions. In the modern financial system. risk knows no borders. Problems in a U.S. banks foreign office flow right back to the parent company here in the U.S.. and it is the U.S. parent company that ultimately bears the loss. This is especially true in derivatives. which are traded in a global and highly interconnected market. For these regulations to be truly effective. however. they must cover derivatives executed in the foreign branches and guaranteed affiliates of U.S. banks. I urge my colleagues to vote against this bill. Mr. Speaker. I rise today in opposition to H.R. 1256. the Swap Jurisdiction Certainty Act. I oppose this bill and the Obama Administration opposes because it would fundamentally undermine DoddFranks derivatives reforms. and would create a loophole big enough to drive an AIGsized truck through. Many of the derivatives that brought down AIG in 2008 were executed through one of its foreign branches. and many of the counterparties on those derivatives were European banks. These derivatives were a big factor in the AIG bailout that cost taxpayers $182 billion. and in the financial crisis that cost our economy over $12 trillion. Why would we want to repeat the same mistake? H.R. 1256 would require the CFTC and the SEC to issue a joint rule detailing how U.S. derivatives rules would apply to transactions between U.S. and foreign companies or individuals. However. the bill then requires the agencies to exempt foreign companies from U.S. rules unless both agencies determine that the derivatives rules in the foreign country are "broadly equivalent" to U.S. rulesa vague standard that would weaken both the CFTC and the SECs proposed rules governing crossborder transactions. In the modern financial system. risk knows no borders. Problems in a U.S. banks foreign office flow right back to the parent company here in the U.S.. and it is the U.S. parent company that ultimately bears the loss. This is especially true for derivatives. which are traded in a global and highly interconnected market. For these regulations to be truly effective. however. they must cover derivatives executed in the overseas branches and guaranteed affiliates of U.S. banks. This is what the CFTC has proposed. and what the supporters of this bill are seeking to prevent. We cannot afford to outsource derivatives regulation to foreign jurisdictions when it is U.S. taxpayers. and not the taxpayers of the foreign jurisdiction. who are ultimately bearing the risks. We learned the hard way with AIG that risk in the derivatives market flows across borders. Why would we want to repeat the same mistake? In response to the financial crisis. Congress enacted DoddFrank. which imposes commonsense rules on the derivatives market. such as capital and margin requirements for U.S. derivatives dealers. These rules will make the financial system safer by ensuring that U.S. banks that deal derivatives are sufficiently capitalized. and have the ability to pay off all of their derivatives without government help. H.R. 1256 would undermine these basic reforms. This is why I oppose the bill. why the Obama administration opposes the bill. and I would urge my colleagues to vote against the bill.