Opening Statements

Remarks as prepared:

Good Morning. Thank you for joining the Commodity Exchanges, Energy, and Credit Subcommittee for today’s hearing, which is the second in a series to examine the implementation of Dodd-Frank over the past five years. In February, we held our first hearing to talk about swap data standards and transparency.  During today’s hearing, we’ll talk about the unintended consequences of some of the most important regulations following the financial crisis: the new capital standards and margin requirements for banks, non-bank swap dealers, and other market participants.

On a fundamental level, derivatives markets exist for hedgers, for those businesses and people who have risks that they seek to manage. On the Ag Committee, we often think about the businesses that serve the farm economy and their ability to manage the risks they shoulder on behalf of their agricultural clients.  But there are producers, manufacturers, merchants, pensions, insurers, and other businesses across our country that face similar challenges managing their commodity, foreign exchange, interest rate, and credit risks.

While Congress has been explicit in its efforts to exempt these end-users from much of the regulatory burdens associated with Dodd-Frank, these rules could have impacts on end-users if they drive intermediaries, like Futures Commission Merchants and Swap Dealers, from the markets. 

If this happens, hedgers will see their spreads widen, their fees increase, and liquidity fall. Without question, the financial crisis could have been tempered with stronger capital rules and margin requirements.  So, today’s hearing isn’t about the purpose or need for capital and margin standards.  Instead, it’s about the outsized consequences of small decisions made when designing these rules.  These decisions – things like how to account for margin or the difference between cash and cash-equivalents – may seem small to regulators, but they will be deeply impactful to main street businesses that rely on derivatives markets to manage their risks.

Regulation is about choices. Each rulemaking is built from a thousand little decisions that are supposed to add up to a desired outcome.  Over the past five years, financial regulators have been busy making a lot of decisions, but it isn’t entirely clear if we’re reaching the outcome that was intended.

Today, we will examine those decisions and compare the outcome to Congress’ longstanding goal to protect end-users from bearing the burdens of the financial crisis. Protecting end-users does not need to be a zero-sum game. I believe we can both build resilient markets and protect end-users from unnecessary burdens. I want to close by thanking our witnesses for the time they’ve spent preparing and traveling to be with us today.  The subcommittee appreciates your willingness to share your talents and expertise with us today.

With that, I’ll turn to our Ranking Member, Mr. Scott, for any remarks he might have.