“SNAP is essential in protecting the most vulnerable citizens during tough times, but we need to have a complete understanding of its mission and purpose.” That was the message from House Agriculture Committee Chairman K. Michael Conaway this week as the committee began its top-to-bottom review of the Supplemental Nutrition Assistance Program (SNAP), previously known as food stamps.
Lucas Questions Geithner on Derivatives
Tamara Hinton (202) 225-0184
WASHINGTON – Ranking Member Frank Lucas delivered the following statement at today’s joint hearing with the Agriculture Committee and Financial Services Committee to review the administration’s proposal to regulate over-the-counter derivatives.
“Thank you Chairmen for having this joint hearing to review the Treasury’s proposal to regulate over-the-counter derivatives as well as examine the legislation the House Agriculture Committee passed a few months ago.
“I would also like to welcome Secretary Geithner to our hearing this morning. Thank you for participating in this public policy process.
“As Ranking Member of the Agriculture Committee and a senior Member of the Financial Services Committee, I have the occasion to examine this issue from two different perspectives. The Agriculture Committee has been very active in exploring the role derivatives play in the marketplace and overall economy. That committee has held numerous hearings to gain further information and insight into the complex nature of credit default swaps and how they should be regulated. In February of this year, the Agriculture Committee passed H.R. 977, the Derivatives Markets Transparency and Accountability Act.
“No one can argue with the concepts of transparency and accountability, but we must make certain that our actions call for an appropriate level of regulation that will respect the nature of the marketplace and will encourage product innovation and economic growth.
“Derivatives do serve a valid purpose in the marketplace when used with judgment. They are essential for managing risk. We must consider that there are numerous industries that have legitimate price risk and there must be a way to mitigate it. Derivatives provide a legitimate means for managing that risk.
“The financial problems that we have seen recently are not the result of the mere existence of derivatives, but rather because there were problems measuring their true performance, or knowing with certainty the depth and breadth of the over-the-counter market, or knowing with confidence the creditworthiness of its counterparty. Simply put, the marketplace can be protected from market failures if regulators are fully aware of the threat. Ignorance of this relatively new financial instrument caused much of the financial failures.
“We now know that these complex markets need better models and methods for oversight and transparency. However, we must be careful not to overreach and force businesses into very expensive clearing operations that cost capital they do not have, or force them out of risk mitigation altogether. Then, businesses will be forced to manage risk with higher prices, which will ultimately be passed onto consumers.
“The need to avoid artificial costs for businesses was the reason I opposed the clearing requirement in H.R. 977.
“There is considerable concern that section 13 as currently drafted, which relates to the clearing requirement, will stifle innovation in the over-the-counter market. CFTC needs more authority to waive the clearing requirement in section 13, so that new and safer products can get to the market in a timely fashion. This would recognize the fact that not all contracts can be cleared, and that there is a need for customized contracts.
“These are just a few of my concerns as we move forward today. Again, I thank you for the opportunity to discuss the issues regarding these important financial instruments. Secretary Geithner I look forward to your testimony and the answers to the questions posed by this panel.”