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House Passes Bill to Exempt Small Banks from Swaps Rules

WASHINGTON – The House on Wednesday easily approved a bill that would provide small banks an exemption from clearing requirements for swaps under the Dodd-Frank Act.

Sponsored by Republican Rep. Vicky Hartzler of Missouri, the bill exempts small banks and credit unions from the 2010 law’s clearing requirement if their exposure to swaps is less than $1 billion.

That provision has the support of the Independent Community Bankers of America, which argued in a recent letter that Dodd-Frank impairs the ability of small banks to hedge their interest rate risk.

"Community banks' use of low risk interest rate swaps do not pose market risks and reflect sound risk management practices," Mark Scanlan, ICBA's senior vice president for agriculture and rural policy, wrote in a Jan. 24 letter to leaders of the House Agriculture Committee.

The bill was opposed by Americans for Financial Reform, which argued that it will provide an exemption not just for small players, but also for major participants in the derivatives markets.

In a letter to members of Congress on Wednesday, the pro-reform group argued that regulators are studying the possibility of a limited community bank exemption to clearing requirements, but the House bill would go further.

"It is important to understand that this $1 billion exposure level can correspond to an enormous swaps book," the group wrote.

Bloomberg reported Wednesday, citing anonymous sources, that the Commodity Futures Trading Commission is currently debating the idea of a small bank exemption to swaps rules, but that a current version of the rule does not include such an exemption.

The House bill passed Wednesday by a 312-111 margin. No Republicans voted against the measure, and about 40% of the chamber's Democrats joined their GOP colleagues in voting for it.

Despite the wide vote margin in the House, the bill is not expected to make headway in the Democratic-led Senate.

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