Committee Statement

 

The Honorable Frank D. Lucas

Ranking Member, House Committee on Agriculture

 

RE: Agriculture Committee hearing to review the Treasury’s proposal for regulating OTC derivatives market, part one

 

September 17, 2009

I thank the Chairman for calling this series of important and timely hearings on the administration’s proposal to regulate the over-the-counter derivatives market.  I congratulate the Chairman on both the structure of the hearings and the diverse and highly impacted list of witnesses.  I hope they will be able to answer some of the many questions I and my colleagues have about the August 11 proposal. 

At a time when all of America is being cost conscience, the administration once again proves it does not get it.  Regardless if you think the economy is improving or not, the administration’s proposal to regulate the over-the-counter derivatives market will do nothing but increase cost.

This administration’s proposal piles more regulation and requirements on legitimate business activity – activity that is aimed at controlling costs and managing risk.  The increase in regulation will increase the cost of doing any business and that increase will be passed onto consumers. 

With all of the focus on unlocking the credit markets, this proposal, in my opinion goes in the wrong direction.  It takes capital, capital that otherwise would be used for research and development, payroll or other employee benefits and parks it over at a clearinghouse where it collects dust.

I am concerned that the increase in costs will reduce if not eliminate its risk management activity which would only translate into price volatility for customers.

Those businesses that decide the new regulatory regime is too costly will go without mitigating its risk, or move its very legitimate and necessary over-the-counter financial activity overseas.  In either scenario, the government loses any ability to oversee the activity and we lose more jobs.

Why do we need a requirement to move transactions onto regulated exchanges?  Where is the systemic risk that this proposal is solving?  Why do we need to go beyond increased transparency to government regulators?

Instead of mandates and prohibitions, we should be encouraging people to trade and clear in healthy, liquid, American markets.

Mr. Chairman, over the next several days I hope to learn answers to some of these questions.  I look forward to hearing from our witnesses today and I thank you for calling this hearing.

 

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