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GOP Seeks to Change Parts of Dodd-Frank Financial Overhaul Bill

Source: WSJ - Alan Zibel and Jessica Holzer

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Posted on 15 Mar 2011

Five draft bills under underway from House Republicans to to repeal or change parts of the Dodd-Frank financial-overhaul law that have been opposed by business groups.

A House subcommittee hearing on Wednesday will discuss these bills. The hearing "will provide an opportunity to discuss several proposals that address some of the act's damaging provisions," Rep. Scott Garrett (R., N.J.) said in a statement.

While most Republicans opposed the landmark financial-overhaul law's passage, they aren't trying to reverse it outright. Instead, they are targeting specific provisions of the bill.

Rep. Barney Frank (D., Mass.), one of the bill's key architects, said many of the Republican initiatives would dismantle important protections for the financial system. "In general, these are people who are opposed to regulation, and they're trying to undo it," said Rep. Frank, the top Democrat on the House Financial Services Committee.

The five areas the bills would target:

• Republicans aim to eliminate a piece of the law attempting to make credit-ratings firms such as Standard & Poor's, Moody's Investors Service and Fitch Ratings liable if their initial ratings turn out to be faulty.

The credit-ratings firms came under a lot of criticism after they were forced to downgrade thousands of bonds backed by subprime-mortgage securities as a result of the housing bust.

The Dodd-Frank provision, however, has been tough to implement. After the financial-overhaul law was passed last year, the ratings firms refused to allow their ratings to be used in offering documents for securities backed by auto and credit-card loans and other assets. As a result, the market for such asset-backed securities seized up last summer.

To get that market going again, the Securities and Exchange Commission suspended a rule requiring asset-backed issuers to include ratings in offering documents and has renewed that waiver indefinitely. The Republican legislation would permanently protect ratings firms from lawsuits.

• House Republicans will also seek to exempt companies that use derivatives to hedge commercial risk from new requirements that they route their transactions through clearinghouses. Those companies have been lobbying for the change, arguing that the Dodd-Frank law leaves uncertainty about whether they would have to clear their derivatives trades.

Under the Dodd-Frank law, most routine swaps are to be traded on exchanges or similar electronic systems and routed through clearinghouses, which guarantee trades and require the posting of securities or cash as collateral, or margin.
But corporations—known as "end users" because they use derivatives to hedge against everyday business risks like currency or fuel price fluctuations and not to speculate on such fluctuations—have fought to secure exemptions.

• They would seek to exempt private-equity fund managers from a Dodd-Frank requirement that they register with the SEC. While many larger private-equity funds are already registered with the SEC, small and midsize fund advisers have been arguing that the registration requirement is expensive and burdensome.

• Republicans also aim to cancel another provision requiring publicly traded companies to disclose the median annual total compensation of all employees and calculate a ratio of how employee compensation compares with that of the chief executive.
Rep. Nan Hayworth (R., N.Y.) said the requirement "will serve no useful purpose for company shareholders, and will divert resources from job creation."

• Finally, Republicans will introduce legislation to boost the offering threshold for companies that don't need to register with the SEC to $50 million from $5 million. Republicans say this change will make it easier for smaller companies to raise money for investment.


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