Tuesday, December 9, 2014

Backdoor Repeal of a Dodd-Frank Provision

Backdoor Repeal of a Dodd-Frank Provision

Remember the bad old days when Congressional earmarks were added to the federal budget in order to secure votes.  House Republicans are attempting to make those earmarks seem like a reasonable price to pay for their votes, because in the current budget negotiations they are close to negating a critical component of the Dodd-Frank financial reform law.  Dodd-Frank instructed the SEC to promulgate rules to prevent banks from trading derivatives through entities enjoying FDIC deposit insurance.  The idea being that bank depositors shouldn’t be on the other end of derivatives trading.  The SEC finally pushed through the rule.  However, bank lobbyists managed to get House Republicans to demand repeal of the rule in exchange for funding the Commodities Futures Trading Corporation in this years last minute budget deal.  Fortunately, this provision leaked before the bill went to the floor of either house.   Hopefully the budget deal will be put on hold until it can be removed.

If legislators want to revisit the substantive provisions of Dodd-Frank, they should introduce and duly consider legislation.  Gutting Dodd-Frank through an 11th hour budget negotiation is a terrible way to change policy.  On the other hand it is only 16 days before Christmas and repealing derivative restrictions would make a might fine present for Wall Street’s bankers.

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