Will The House Republicans’ Regulation Plan Stay Silent On Derivatives?

Reuters yesterday reported that the Obama administration “plans to unveil on June 17 its sweeping plan to overhaul financial regulation.” The plan will reportedly “serve as a framework for lawmakers as they embark on the thorny task of restructuring how banks, hedge funds, derivatives, and other financial firms and securities are policed.”

Not to be outdone, House Republicans are putting together their own proposal, to be released next week. Congressional Quarterly reports:

The GOP plan, which is still being finalized, would modify the bankruptcy code to deal with the failure of large financial institutions, reduce the Federal Reserve’s role in banking matters and begin the process of fully privatizing mortgage giants Fannie Mae and Freddie Mac. In those areas, it veers sharply from a regulatory overhaul being finalized by the Obama administration that will serve as a template for congressional Democrats as they turn to crafting legislation on the issue.

Most of this goes right along with the Republican’s misguided attempts to place blame for the financial crisis on Fannie and Freddie, but I was struck that derivatives aren’t mentioned anywhere in the write-up. Could the plan that Republicans are drawing up really not touch on derivatives, which undeniably played a huge role in the economic crisis?


Just today, CongressDaily reported that those favoring stronger regulation “have gained the upper hand in the debate” over derivatives, “placing banks and securities dealers on the defensive in their quest to have Congress apply a light touch to the multitrillion-dollar industry.” Also, the chairman of the Commodity Futures Trading Commission told the Senate Agriculture Committee today that “all derivatives should be regulated in some manner.”

And then there was Sen. Saxby Chambliss (R-GA), who warned the same committee “against ‘vast, unintended consequences’ from overly stringent regulation of derivatives that he said could stifle the flow of cash through the market.” This epitomizes the conservative approach before the economic crisis, and it seems like not much is going to change.