WASHINGTON House Banking Committee leaders have shelved plans to vote on a derivatives bill this year at the urging of the Treasury Department and nine committee members.
The bill, which was introduced in May by Rep. Henry Gonzalez. D-Tex., the committee chairman, and Rep. Jim Leach. R-Iowa, the committee's top Republican, would have required federal regulators to establish comprehensive and consistent standards for the derivatives activities of banks. federal credit unions. and governmentsponsored housing agencies.
But Frank N. Newman, Treasury undersecretary for domestic finance, asked Gonzalez in a letter on Friday to "indefinitely postpone" a vote on the bill, which had been scheduled for Wednesday by the subcommittee on financial institutions supervision. regulation, and income. Newman said the vote would be "premature."
The Treasury undersecretary praised Gonzalez and Leach for their leadership on derivatives issues and said they had sparked debate on the need for additional regulation and spurred federal regulators and industry officials to take action to improve their oversight of derivatives activities.
But Newman added that. "in light of the progress the private sector and financial regulators are making and the further progress we anticipate. the administration has not identified a need for legislation regarding derivatives at this time .... "
If administration officials decide that derivatives legislation is needed. Newman said, "we will contact you promptly and will be eager to work closely with you to develop an appropriate bill."
In the meantime, he said, "we hope you will agree that legislative action is not appropriate at the current time."
Newman's letter followed a similar one that was sent to Gonzalez last Tuesday by a bipartisan group of nine banking committee members.
Rep. John J. LaFalce, D-N.Y., Rep. Bill McCollum, R-Fla., and others urged Gonzalez not to hold a vote on the pending derivatives bill because it would affect banks but not other derivatives dealers.
"We recommend that the committee not move ahead on legislation that would only impact depository institutions, and not other participants in derivatives, particularly when the banking industry is already the most regulated business entity and all of the federal banking regulators have clearly testified that this bill is not presently necessary," the committee members said.
Instead, they urged Gonzalez to work with Rep. John Dingell, DMich., chairman of the House Energy and Commerce Committee, which oversees over securities issues, and the Agriculture Committee on any legislation dealing with derivatives.
Derivatives market participants hailed Gonzalez's action to shelve consideration of the pending derivatives bill as a major victory.
"There seems to be a growing consensus that legislation is not necessary at this time," said a spokesman with the International Swaps and Derivatives Association.
Some industry officials suggested that Gonzalez was forced to postpone action on the bill because there would not have been enough votes in the subcommittee or full committee to approve it.
The Newman letter, these sources say, just gave Gonzalez "cover" to stop action on the bill without admitting to any lack of votes.
But congressional aides insisted this week that the bill would have been approved by the subcommittee and the full committee.
"The votes were never a question," one aide said.
The vote was postponed because Gonzalez, Leach, and other committee members decided it did not made sense to act on the bill when there was not enough time left in the session to move it beyond the full committee, the aides said.
The Banking Committee will probably take up derivatives legislation next year in a cross-jurisdictional bill that will deal with such issues as repeal of the Glass-Steagall Act, which seeks to prohibit commercial banks from engaging in investment banking activities, and regulation of banks' sales practices related to mutual funds, one committee aide said.
But any cross-jurisdictional legislation on derivatives could face tough sledding because Dingell has suggested it may not be needed.
Dingell has praised securities industry efforts to work with federal securities regulators to develop voluntary derivatives standards and has said he will give these efforts a chance to work before considering legislation.