Senator Roberts: Derivatives Regulations Must Lower Systemic Risks and Costs Cannot Outweigh Benefits

WASHINGTON, DC - At a hearing of the Senate Agriculture Committee on implementation of Dodd-Frank Wall Street Reform derivatives regulations, U.S. Senator Pat Roberts, Ranking Member, today said regulations must lower systemic risk and avoid creating unnecessarily high risk management costs for producers and businesses.
Witnesses at the hearing included U.S. Commodity Futures Trading Commission Chairman Gary Gensler and U.S. Securities and Exchange Commission Chairwoman Mary Schapiro.
The following is the text of Senator Roberts' prepared remarks:
"Thank you Madam Chairwoman for holding what I hope it is the first of several hearings regarding the implementation of the derivatives provisions included in the Dodd-Frank Wall Street Reform Act.
"While you and I are in new leadership positions on this committee, we are not new to the very important issues surrounding derivatives regulation. We both worked very hard - albeit from different perspectives - on the Dodd-Frank bill as it went through the Senate last year.
"Yet, we share similar ultimate goals of properly reforming derivatives markets while maintaining robust and liquid markets to allow farmers, ranchers and commercial end-users to manage risk and discover market driven prices. It is fair to say that, as the Ranking Republican of this Committee, I would have preferred a somewhat more measured approach than what passed. However, I am optimistic that the regulators-specifically the Commodity Futures Trading Commission and the Securities and Exchange Commission-have sufficient discretion in their newly-granted authorities to ensure that we stay competitive and do no harm to our domestic markets, exchanges or users.
"That being said, I want to remind folks that the Dodd-Frank derivatives provisions reach far beyond financial firms - it will impact every segment of our economy, from farmers and ranchers, to manufacturers and energy companies, to health care and technology.
"Dodd-Frank gave the CFTC and SEC nearly limitless authority with regard to the regulation of those derivatives, formerly known as over-the-counter swaps. Proponents of the derivatives portion of Dodd-Frank believe it will prevent the next financial meltdown -- well I hope that is true.
"In typical Washington fashion, however, the derivatives regulation provisions of Dodd-Frank go well beyond dealing with credit default swaps-which as far as I can tell were the only derivatives ever mentioned as being part of the financial crisis-and completely regulate every aspect of every swap and every swap user, including a whole lot of people and businesses who had nothing to do with causing the financial crisis.
"So, the CFTC and SEC have a lot of authority, and that worries some folks. If our regulators stay focused on only writing regulations that truly reduce systemic risk and avoid actions that will unnecessarily raise risk management costs, then American farmers and businesses will be able to keep managing their business risks with derivatives in an economically sustainable manner.
"Madam Chairwoman, with the fragile state of the economy today, we need to ensure that all new derivatives regulations meet two tests:
1. it must lower systemic risk; and
2. costs cannot outweigh benefits.
"With the globalization of derivative markets, we need to ensure our regulators are exercising their authority in a manner that ensures we will continue to have thriving domestic derivatives markets.
"I have a few questions in this regard that I'll get to later. I look forward to hearing from our witnesses today and thank them for their time."
Senator Roberts has been outspoken in his concern regarding burdensome and costly government regulations.
This week, Roberts gave the first in a series of four floor speeches featuring federal agricultural, environmental, health and financial regulations that damage different sectors of the economy.
Last month, Senator Roberts introduced a bill called the "Regulatory Responsibility for our Economy Act," or S. 358, to strengthen and codify the president's Executive Order from January 18, 2011, to ensure the president's order is carried out to review, modify, streamline, expand, or repeal those significant regulatory actions, that are duplicative, unnecessary, burdensome, or would have significant economic impacts on Americans. The legislation has 30 cosponsors.
Senator Roberts voted against the Dodd-Frank Wall Street Reform Act.