WASHINGTON -- House Banking Committee Chairman Henry B. Gonzalez has put derivatives legislation on a fast track, and hopes his committee will approve it by the end of June.
A joint bill that consolidates the proposals of Rep. Gonzalez and Jim Leach of Iowa, the committee's ranking Republican, will be introduced in the next few weeks, Rep. Gonzalez said on Monday.
"It is my hope that the banking committee will consider the Gonzalez-Leach derivatives legislation after the housing bill currently in the works and before the Fourth of July recess," the Texas Democrat said.
More Information Sought
Also on Monday, Rep. Gonzalez called for more information about the flow of currency across borders. He requested that the General Accounting Office study the issue and sent a letter to Federal Reserve Board Chairman Alan Greenspan asking for more information about the flows.
Rep. Gonzalez recently announced a five-point plan to strengthen oversight of financial markets, including legislation to beef up supervision of bank derivatives activity and consideration of bank exposure to hedge funds.
After learning that some large banks have trading accounts that operate like hedge funds, sometimes taking large positions in markets, Rep. Gonzalez has grown more concerned about the issue. He plans to scrutinize this activity more closely, his aides said.
"The Congress did not create deposit insurance in order for banks to speculate with insured funds," Rep. Gonzalez said. "Insured depository institutions should not be in the business of rolling the dice on the direction of interest rates, currencies, equities, or commodities.
Potential for Losses Seen
"A large swing in interest rates or currency rates or some other systemic shock has the potential to cause losses in the money-center banks that could severely strain their ability to survive," he added. "We have to take steps to ensure banks don't abuse that privilege by engaging in massive speculation."
Finally, during the next few weeks, Rep. Gonzalez plans to request several reports on various international financial issues.
In Monday's requests to the Fed and the General Accounting Office for more information about currency flows, Rep. Gonzalez pointed to the importance these flows play in monetary and fiscal policy, anti-money-laundering efforts, and the accuracy of capital flow statistics.
The congressman noted a 1992 study by the International Monetary Fund that questioned the quality of data collected about international financial transactions.
"The lack of information about how much currency is flowing out of the country is mind-boggling," Rep. Gonzalez said.
"At present, the Federal Reserve's shot-in-the-dark estimate places the amount of currency overseas at a whopping 60%," he added. "But little analytical work has been done to determine through what channels currency flows across our borders, the destination of the money, and why it flows where it does."
This is not the first time Rep. Gonzalez has asked the Fed about these data. In a response to a previous inquiry, Mr. Greenspan told him that the Fed's estimates of currency flows were "subject to considerable imprecisions."
"Considering that the Fed needs to understand how currency movements affect monetary policy, I found its answer highly problematic," Rep. Gonzalez responded.
Questions About Effects
In his latest letter to Mr. Greenspan, Rep. Gonzalez asked for more information about how monetary policy is affected by the high level of currency held by foreigners, and how changes in their willingness to hold dollars would affect Fed policy.
He also asked about what steps the Fed is taking to improve its data on currency flows.