Senate Agriculture Committee Chairman Blanche Lincoln (D-Ark.) has introduced legislation she says would "bring 100 percent transparency to the nation's financial markets, prevent future bailouts and protect jobs on Main Street ." Her proposal includes mandatory clearing and trading requirements, real-time reporting of derivatives trades and "ensures that all loopholes are closed," according to a statement from Lincoln 's office.
Lincoln 's proposal also would prohibit the Federal Reserve and Federal Deposit Insurance Corporation from providing any federal funds to bail out Wall Street firms that engage in risky derivative deals. Banks engaging in risky swaps transactions will be forced to spin off their swap dealer desks or be barred from receiving any federal assistance.
Lincoln's bill is being presented as a companion to a broader financial reform effort being led by Senate Banking Chairman Chris Dodd (D-Conn.), with the hope that it will be absorbed into Dodd's larger package. The Agriculture Committee has asserted jurisdiction over derivatives because it oversees the Commodity Futures Trading Commission, which regulates futures trading.
The measure was applauded by CFTC members, which would receive broad new authority under the legislation. Chairman Gary Gensler called it a "strong bill that would establish essential protections," while Commissioner Bart Chilton said it "gives us the tools we need to lay the hammer down on wrongdoers."
Senate Minority Leader Mitch McConnell says there appears to be broad support in both parties to overhaul regulation of derivatives. Speaking on CNN's State of the Union, McConnell (R., Ky.) said it was his understanding that "there's broad bipartisan support for changing the current way derivatives are regulated."
Meanwhile, speaking recently with reporters about the larger financial reform initiative now taking center stage in Congress, President Obama said derivatives oversight could be a make-or-break part of that effort. "I want to see what emerges, but I will veto legislation that does not bring the derivatives market under control in some sort of regulatory framework that assures that we don't have the same kind of crisis that we've seen in the past," he said.
