WASHINGTON – The House passed a controversial bill on Wednesday that would alter a key swaps provision of the Dodd-Frank Act.  

The Swaps Regulatory Improvement Act would reduce the restrictions under section 716 of the reform law, which required banks to spin off risky swaps out of depository institutions to subsidiaries and affiliates. The measure passed the chamber by a bipartisan vote of 292-122, including 70 Democrats.

“Section 716 requires financial institutions to ‘push out’ almost all of their derivatives business into separate entities,” said Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, during a speech on the House floor Wednesday. “This not only increases transaction costs, which are ultimately paid by the consumers, it also makes our financial system less secure by forcing swap trading out of regulated institutions.”   

Still, some Democrats continued to warn about the possible effects of the legislation.

“This legislation will effectively allow banks to undertake derivatives trading with depositors’ money,” Rep. Maxine Waters, D-Calif., the top Democrat on the banking panel, said in a statement. “If the banks lose money on this sophisticated trading, systemic risk could creep back into our financial system, once again putting the economy – and the American taxpayers – at risk.”

A companion version of the bill has yet to gain traction in the Senate.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.