Senate committee passes tough derivatives reform

Slocum

Senate Agriculture Committee Chair Blanche Lincoln (D-Ark.) delivered important and strong derivatives reform legislation that passed her committee today. The Wall Street Transparency & Accountability Act of 2010 goes a long way to rein in the risky and out-of-control derivatives market. Banks have exploited these complex financial arrangements to pump up energy prices and extend systemic risk in securitized debt markets, which was the catalyst in the near-collapse of the U.S. economy in the fall of 2008.

The legislation corrals the unregulated over-the-counter market by requiring most derivatives to be traded openly on exchanges with only limited exemptions for bona fide hedging. Derivatives dealers would be subject to real-time price and trade reporting. The bill as proposed also would require commercial banks to leave the business of trading in derivatives, a reform that substantially reduces the overall riskiness in the financial system. Further, the legislation would give additional new authority to the Commodity Futures Trading Commission to crack down on abusive derivatives products and more effectively police this multitrillion-dollar trading market.

We applaud Sen. Lincoln and the committee for approving this measure. Now the Senate must stand up to the lobbying clout of Wall Street and not weaken this needed legislation.

Tyson Slocum is the director of Public Citizen’s Energy Program.