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From Banking and Finance Law Daily, January 9, 2015

Senate clears TRIA with relief for derivatives end-users

By Jim Hamilton, J.D., LL.M. and John M. Pachkowski, J.D.

The Senate passed by a vote of 94 to 4 the Terrorism Risk Insurance Program Reauthorization Act, H.R. 26, which contains relief for non-financial derivatives end-users, such as airline companies hedging the price of jet fuel, from the margin and capital requirements of Title VII of the Dodd-Frank Act. A proposed amendment by Sen. Elizabeth Warren (D-Mass) to strip out the derivatives end-user provision was defeated on a 66 to 31 vote. Since the House passed the bill by a vote of 416 to 5 earlier this week, the measure is now cleared for the President, who is expected to sign it.

Applauding passage of TRIA with the relief for non-financial derivatives end-users, Financial Services Chair Jeb Hensarling (R-Texas) said that Congress would be negligent in its duties if it did not continually monitor and fix Dodd-Frank’s unintended consequences. One of which is the provision that requires burdensome derivatives margin regulations intended for Wall Street firms to apply to farmers, ranchers, and small businesses.

Community banker on Fed. The measure includes a provision authored by Sen. David Vitter (R-La) that would require the Federal Reserve Board of Governors to have at least one member with community bank or community bank supervision experience.

Commenting on the bill’s passage, Vitter noted, “The Federal Reserve’s role in bank supervision has greatly expanded, so it should go without saying that we need people with real world banking experience on the board. But recently we’ve just been adding academics, economists, and Wall Street sympathizers. We need to make sure that community bankers and those with related experience can have an appropriate voice in our nation’s financial system decisions.”

Statement of policy. In a statement of policy issued last year, the White House expressed serious concerns with the end-user provision in this TRIA-related bill that has broad bipartisan support. The White House said that broadening Dodd-Frank’s statutory exemptions is a complicated issue with serious implications for the health and stability of the financial markets. The main purpose of the bill is to reauthorize the Terrorism Risk Insurance Program; and the bill should not be used as a vehicle to add entirely unrelated financial regulatory provisions. The White House has not issued a statement of policy on the 114th Congress version of the bill. Despite the stated opposition to including the Dodd-Frank fix in the bill, the President is still expected to sign the measure.

Congressional and industry reaction. Sen. Mike Crapo (R-Idaho), who acted as the floor manager during Senate consideration, said, “Without this legislation, the new [Dodd-Frank] regulations will make it more expensive for farmers, manufactures, energy producers and many small business owners across the country to manage their unique business risks associated with their daily operations.” He added, “There is bipartisan agreement that certain Dodd-Frank rules go too far and need to be fixed, such as what the end-user provision in this bill is trying to accomplish.”

Sen. Jon Tester (D-Mont) noted, “The end-user exemption will ensure that Montana farmers and ranchers can continue to effectively manage risks, provide for their families, and protect their livelihoods.” He added, “Smart risk management strengthens our economy, and this bill clarifies Congress' intent to give small businesses the flexibility and certainty they need to run their businesses effectively.”

The incoming Ranking Member of the Senate Banking Committee, Sherrod Brown (D-Ohio), added, “I am pleased that Congress will finally be sending legislation to the President that will renew the Terrorism Risk Insurance Program. We could have done this last summer, after the Senate passed its version of the legislation overwhelmingly and before the program expired. Unfortunately, our colleagues in the House waited until the last minute to act and we were forced to finish the work this year.” Brown continued, “I take Majority Leader McConnell at his word that future legislative efforts will be given the attention they deserve with hearings, debate, and the opportunity for amendments in committees and on the floor.”

Two House members that represent New York City, Reps. Carolyn B. Maloney (D-NY) and Gregory Meeks (D-NY) also commented on TRIA’s reauthorization.

Rep. Maloney noted, “The Terrorism Risk Insurance Act should not have been allowed to expire in the first place. The result has been uncertainty for businesses, loan agreement defaults, development projects stalled, and downgrades threatened. New York City in particular felt the pain of this self-inflicted wound. Congress has now acted to extend TRIA for another six years, and I look forward to the President signing this bill into law. I am proud to have led house Democrats in support of extending the program, and I applaud House and Senate leaders for making TRIA the first priority of the 114th Congress.”

Meeks added, “The impact of the 9/11 terrorist attacks produced insured losses of about $43 billion in 2014 dollars, the largest insurance loss in history which could not be sustained without government intervention to support major reconstruction efforts. The passage of TRIA is crucial to restoring stability in our economy, and enabling major development and construction projects to proceed as planned. I therefore thank the House and Senate leadership for heeding the calls of myself and others to make the program’s renewal the first order of business in the new Congress.”

Finally, the principal sponsor of H.R. 26, Rep. Randy Neugebauer (R-Texas), stated, “I applaud Majority Leader McConnell and my colleagues for their efforts to move my bill through the Senate and for defeating Senator Warren’s radical attempt to prevent regulatory relief for our hardworking farmers, ranchers, and small business owners. It is my hope that the President quickly signs this much-needed reform bill into law.”

Trade and advocacy groups also reacted favorably to the TRIA reauthorization.

The Financial Services Roundtable applauded the “strong collaborative effort by Congress to pass this bipartisan legislation critical to taxpayers and our national economy” and “hopes this paves the way for more bipartisan work in Congress and that President Obama will sign the bill quickly into law.”

The Independent Community Bankers of America® commented on the provision of the legislation that would require the White House to appoint someone with community banking experience to the Federal Reserve Board. “While President Obama has announced his intent to nominate a community banker to the Federal Reserve Board, ICBA strongly supports this legislation so that there is always such representation on the board,” said ICBA Chairman John H. Buhrmaster, president and CEO of 1st National Bank of Scotia, N.Y. “Community bankers are vitally important to our local and national economies and should have a strong voice on the Fed board. ICBA and the nation’s community bankers call on President Obama to sign this measure into law.”

James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association, noted, “The banking industry also appreciates a provision in the bill clarifying that end users of derivatives are exempt from posting margin for uncleared swaps. This will help maintain competition in the market and allow bank holding companies of end-user banks to meet their customers’ needs and hedge their capital costs economically.” He added the legislation “represent[s] practical steps forward.”

Finally, Bruce Josten, Executive Vice President for Government Affairs at the U.S. Chamber of Commerce, said, “In this new Congress, the Chamber applauds both the House and Senate for moving swiftly to reauthorize the Terrorism Risk Insurance Program, a critical public-private partnership that provides necessary security to our nation’s business community. With this legislation, Congress has given lenders, borrowers, and developers the assurance they need to proceed with new and existing projects, enabling economic development and job creation.” He added, “Additionally, TRIA includes important reforms which will help bolster our economy, such as a clarification of Dodd-Frank that will protect main street companies that use derivatives to hedge their business risk.”

Companies: 1st National Bank of Scotia, N.Y.; American Bankers Association; Financial Services Roundtable; Independent Community Bankers of America; U.S. Chamber of Commerce

MainStory: TopStory BankingOperations DoddFrankAct FederalReserveSystem FinancialStability SecuritiesDerivatives

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