Swap Jurisdiction Certainty Act

Floor Speech

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Mr. MARKEY. Mr. Speaker, I rise in opposition to the bill being considered today, H.R. 1256, the Swap Jurisdiction Certainty Act. Although couched as an innocuous bill to ensure that US banks have clarity about how swaps and derivatives trades are to be managed between U.S. and non-U.S. entities, in reality this bill will significantly impede efforts to apply strong regulations on Wall Street banks trading in these financial products.

The size of the global swaps market is staggering. According to the Bank for International Settlements, at the end of last year, the total notional value of outstanding over-the-counter swaps was over 632 trillion dollars. Again, 632 trillion dollars. In comparison, the gross domestic product of the entire United States was just 15.1 trillion dollars at the end of last year. The swaps market is over 40 times larger than the entire U.S. economy; in fact, the swaps market is 10 times larger than the entire global economy.

This market is also truly global in scope. Many of our major Wall Street banks, such as J.P. Morgan, Bank of America, and Goldman Sachs, have significant foreign subsidiaries. Bank of America alone has subsidiaries in approximately 40 countries. Given the massive size of this market, we need the strongest possible rules over swaps transactions in foreign subsidiaries that could adversely affect U.S. banks and bank holding companies.

Unfortunately, this bill will prevent our primary regulator of the swaps market, the Commodity Futures Trading Commission, from finalizing strong regulations. The CFTC has spent years crafting strong rules governing cross-border swaps and derivatives and has received a large amount of industry input on these rules. The most recent draft was circulated on May 16, 2013. If this bill passes, that entire process will be stopped in its tracks, even as the rules are supposed to be finalized within the next 30 days. Enacting this bill now is tantamount to tripping the CFTC at the finish line.

Even beyond the poor timing of this bill, the bill will substantially weaken the CFTC's ability to regulate the global swaps market. Under the text of H.R. 1256, the CFTC and the SEC are to jointly release rules governing cross-border swaps. Yet, as part of that rulemaking, the CFTC and SEC are required to assume that a foreign person in compliance with the regulations of any of the nine largest combined swap jurisdictions is also in compliance with all U.S. swaps rules. Given that the United States sets the global standard in financial matters, this provision effectively makes all global swaps rules only as strong as the rules of the weakest country among the nine largest jurisdictions. In other words, it will prompt a regulatory race to the bottom, which is a recipe for disaster.

Have we learned nothing from the excesses of the Bush Administration, when financial deregulation allowed excessively risk derivatives driving a financial market collapse? Just five years after that experience, this is a bill that allows for increased deregulation of some of Wall Street's most dangerous financial products at a time when we need more regulation of swaps. It was only one year ago that J.P. Morgan experienced its ``London Whale'' fiasco, where bad decisions by J.P. Morgan personnel in London resulted in New York based J.P. Morgan taking a loss of $6.2 billion. No one in senior management, risk, legal, or compliance was aware of the risks or liabilities being assumed by people in the London office. Yet, if CFTC's cross-border swaps rules were in place, maybe that disaster would not have happened.

U.S. based swaps dealers are increasingly fragmented, and we need strong central rules to minimize the risk of swaps trading causing another financial crisis. At a time when we are just four years removed from the worst recession since the Great Depression, a recession sparked by insufficient regulation of the swaps market, this bill is the wrong solution for the wrong problem at the wrong time. I urge my colleagues to vote no on H.R. 1256.

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