On Friday, December 12, the Systemic Risk Council released the following statement about the repeal of Section 716 in the omnibus spending bill.
“We wish to express our strong opposition to including in the omnibus spending bill a repeal of the so-called ‘swaps push-out’ provision of the Dodd-Frank financial reform law. While this provision only pertains to a small portion of derivatives trading, its repeal would set a dangerous precedent.
First, if we want a more stable financial system, repeal of this provision, also known as Section 716, goes in the wrong direction. To increase market discipline and protect taxpayers, we should be shrinking the safety net, not expanding it. Repeal of Section 716 would allow certain high risk swap transactions to be conducted inside banks which are supported with taxpayer-backed, insured deposits, as opposed to securities and derivatives affiliates which do not use taxpayer backed funding sources. As FDIC Vice-Chair Tom Hoenig has stated, such a move is ‘illogical.’
Second, any changes to Dodd-Frank should be considered and passed under regular order, after thorough Committee consideration. If the changes to Dodd-Frank cannot pass on their own merits as part of the normal legislative process, they should not be jammed through as riders to must-pass spending bills. The American people deserve better from their elected representatives.”