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Thursday, March 7, 2013

House and Senate Introduce Legislation to Reform Swaps Push-Out Requirement

Bipartisan legislation introduced by House and Senate lawmakers would reform the swaps push-out requirement to allow banks to continue engaging in commodity, equity, and some structured finance products. The legislation would also clarify that non-U.S. banks would be treated the same as U.S. banks.

The push-out requirement applies only to swap dealers and some major swaps participants, but it has been the focus of broad debate because it will affect the ability of both banks and their customers to centralize risk management. Banks will have to form a separately-capitalized and funded affiliate to conduct some swaps. Customers would lose the ability to do “one-stop shopping” with a bank for loans and swaps to offset their credit risk even if they prefer to have a bank as a counterparty. Regulators have argued that the requirement would move derivatives trading out of banks and into less-regulated entities.

ABA supports push-out reform legislation and appreciates the leadership of Senators Hagan (D-NC), Toomey (R-PA), Warner (D-VA), and Johanns (R-NE) as well as Representatives Hultgren (R-IL), Himes (D-CT), Hudson (R-NC), and Maloney (D-NY) on this issue.

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