WASHINGTON -- Legislation aimed at tightening regulation of banks' derivatives activities may get a boost in the coming week, but it will have to overcome staunch opposition from the banking industry.
The House Banking subcommittee on financial institutions has scheduled a Sept. 21 vote on the bill, which was introduced in May by House Banking Committee Henry B. Gonzalez.
Bankers are wary of the bill because they think it will worsen the stigma associated with derivatives.
"By moving this bill, it sends a signal to the market that there is a problem in the regulation of derivatives", said Edward L. Yingling, chief lobbyist for the American Bankers Association. "It's a negative signal that could affect the marketplace. The banking industry will oppose the effort to move this bill forward."
However, Mr. Yingling said, chances are slim that the bill will be enacted during this Congress.
"We are concerned, but we don't think that anything will happen this year," he said.
The Derivatives Safety and Soundness Supervision Act of 1994, cosponsored by Rep. Jim Leach, R-Iowa, would direct bank regulators to establish guidelines for oversight of derivatives activities.
It would also authorize regulators to require financial institutions to disclose derivatives activity information in their call reports.
In response to a request by financial institutions subcommittee Chairman Stephen L. Neal, D-N.C., for recommendations, banking regulators last month echoed the industry's opposition to stiffer derivatives regulation.
Federal banking agencies argued that they already oversee derivatives activity sufficiently.
"While the goals of HR 4503 appear to be consistent with those of our own regulations and policies, we do not believe that legislation is necessary at this time," said acting director of the Office of Thrift Supervision Jonathan L. Fiechter in a letter to Rep. Neal last month.
"Regulators have all the authority they need, so what's the point?" Mr. Yingling added.
Nonetheless, concern in Congress over the highly speculative nature of derivatives has spawned a flurry of bills.
Among them is a bill that Senate Banking Committee Chairman Donald W. Riegle, D-Mich., introduced in July.
The Riegle bill would require derivatives transactions to be handled in separate holding company affiliates and would subject non-bank derivatives dealers, such as insurance companies and broker-dealers, to Securities and Exchange Commission regulation.
A similar bill has been offered in the House by Rep. Edward J. Markey, D-Mass.
On the Senate side, Byron L. Dorgan, D-N.D., has introduced legislation that would prevent avoidance of U.S. taxes through the use of derivatives by foreign-based firms.
No further action has been scheduled on the Riegle, Markey, or Dorgan bills.
The Gonzalez-Leach bill applies only to insured financial institutions, in large part because the banking committee wants to avoid sharing jurisdiction for the measure with the House Energy and Commerce Committee.
Energy and Commerce oversees the securities and insurance industries.
Derivatives are contracts whose value "derives" from the performance of underlying currencies, interest rates, or commodities.