Many voices are joining in arguing for a similar public policy response – centered around effectively controlling systemic risk, providing information to regulators & market participants, and not harming the economy.  Here are some of the voices that are in agreement:

The Coalition – and Other Business End Users.  Formed in August 2009, the Coalition for Derivative End users represents businesses that use OTC derivatives to manage business risks such as fluctuations in currency exchange rates, interest rates, and commodity prices.  The Coalition consists of the Business Roundtable, the National Association of Corporate Treasurers, Financial Executives International, National Association of Manufacturers, the American Petroleum Institute, NAREIT, the Real Estate Roundtable, the U.S. Chamber of Commerce and about 200 other companies and trade associations.  The Coalition’s primary goal has been to ensure continued access to OTC derivatives for business end users, while protecting competitiveness and promoting economic growth.  The Coalition has been instrumental in advocating for an exemption from provisions that would require businesses to tie up precious working capital as collateral for their risk-mitigating derivative transactions.  In so doing they have become an important stakeholder in the policy debate, and have convinced many policymakers that indiscriminate regulation will have negative unintended consequences.  That the term “end user” is now part of the lexicon of financial regulatory reform is largely a credit to the Coalition and other business end users who have made their voice heard. 

The House.  In December 2009 the House of Representatives passed their own version of financial services reform, which contained derivatives legislation that was reasonable and end user friendly.  The bill would focus primarily on the dealers and systemically significant market players, while preserving the ability of end users to manage their business risks in a manor that does not restrict access to derivative markets.  During the House process, several key champions of the end user cause emerged, including Scott Murphy (D-NY), Scott Garrett (R-NJ), Michael McMahon (D-NY) and Melissa Bean (D-IL). 

The Regulators (in part).  The swap desk spin-off provision (“Section 716”) introduced by Senate Agriculture Committee Chairman Blanche Lincoln has galvanized the regulators, who see this as overreaching and potentially detrimental to the safety and soundness of our banking system.  Although she has never been one to shy away from criticizing the big banks, FDIC Chairman Sheila Bair warned that the spin-off provision would move $294 trillion in notional derivative amounts outside of banks or bank holding companies into less regulated and highly leveraged “shadow banking” entities, resulting in weaker protections of insured banks and the Deposit Insurance Fund.  Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and former Fed Chairman Paul Volcker all oppose the provision as well, having expressed that it would be highly disruptive and costly to financial institutions and their customers.  The provision if passed could make it difficult or more costly for end users to hedge, and could reduce the pool of available counterparties.

The number of businesses, legislators, and regulators who have come to understand the importance of maintaining access to OTC derivative markets has grown since the economic crisis sparked demand for reform 18 months ago.  Your voices have broken through the chaos of the crisis and subsequent legislative debate and, as a result, thoughtful reform is within reach.  As a testament to the impact you have made, Wednesday on the Senate floor, Senator Saxby Chambliss read directly from a letter sent by a Chatham client warning against overreaching regulation.  As we head to the finish line, we will continue to put our clients’ interests first as we push for effective reform of the market.

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