WASHINGTON — The Senate Agriculture Committee has voted 13 to 8, mostly along party lines, to approve a bill to regulate over-the-counter derivatives. The bill would impose a fiduciary duty on dealers who pitch, advise or enter into swaps with localities, endowment funds, or pension funds.
Sen. Charles Grassley (R-Iowa) was the only Republican who voted for the legislation, which may be added in some form to the massive financial regulatory reform bill pending before the full Senate.
The Iowa Republican's vote was something of a surprise, as the bill had been characterized as too extreme by others in his party.
The vote's impact for the broader regulatory reform is unclear. The derivatives bill is expected to be included as part of the reform package, which only needs the support of one GOP member to avoid a filibuster. The vote marked the first time that a Republican has voted for any element of regulatory reform in either the House or Senate.
Commitee Chairman Blanche Lincoln called the vote "historic."
Large banks have called the bill too harsh, as it would force them to divest their swaps. It would also require most derivatives to be centrally cleared and traded on exchanges with real-time price reporting to ensure full transparency.
The bill would let the Commodity Futures Trading Commission establish future margin requirements and impose limits.
Lincoln toughened the bill further Wednesday by eliminating an exemption on clearing requirements on banks with less than $50 billion of assets.
The revised bill did address at least one of the banking industry's concerns; rather than require all foreign currency swaps to be regulated like other contracts, the bill would let the Treasury Secretary determine if there should be exceptions.
Nonetheless, the industry's biggest concern was left unchanged. The bill would ban any financial firm that receives federal support, including access to the Federal Reserve Board's discount window and deposit insurance, from trading swaps.
Lincoln said the goal of the provision is similar to the so-called Volcker Rule to ban banks from engaging in proprietary trading. She wants to ensure all risky derivatives transactions are separated from commercial banking. The indsutry has countered that the practical impact of the measure would be to force most swaps dealers offshore.
During debate, several Republicans said a broader bi-partisan agreement had been within reach two weeks ago, but the White House shut down negotiations between Lincoln and Sen Saxy Chambliss, the top panel Republican.
"Less than two weeks ago, we had worked out a good bi-partisan product," Chambliss said. "I wish that the other members of the committee, both Republicans and Democrats, would have had the opportunity to help further refine that agreement."