Senate Math on Financial Reform Gets a Bit Easier

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Maria Cantwell intends to vote for the bill, her spokesman tells me. She was won over by a letter from Commodity Futures Trading Commission Chairman Gary Gensler, in which he reassured her the language regulating derivatives is sufficiently clear and enforceable. Cantwell voted against the original Senate version because of concerns that there were loopholes in that portion of the legislation.

Her vote means Democrats will only need to win over two of the four fence-sitting Republicans to clear procedural hurdles in the Senate. Susan Collins has already suggested she’s inclined to support the bill, leaving Olympia Snowe, Chuck Grassley and Scott Brown as three potential pick-ups to put the legislation over the top.

Jay reported earlier today that “Harry Reid’s staff didn’t seem too worried” about getting the votes. Cantwell’s support gives them that much more breathing room headed into the recess.

Cantwell’s statement and Gensler’s full letter after the jump:

Cantwell Announces Support For Regulatory Reform Legislation

“I will vote in support of the conference report because it makes great strides toward our ultimate goal:  bringing all standard derivatives onto exchanges and clearinghouses, with aggregate position limits and strong anti-manipulation tools,” Senator Cantwell said. “Since even before the financial crisis of fall 2008 I have been fighting to bring the $600 trillion derivatives market out of the dark, unregulated betting hall where it has existed and into the bright light of transparency and regulation. This legislation is not perfect, and I will continue to push for even bolder action – including a return to the Glass-Steagall separation of commercial and investment banking – to reign in Wall Street, put an end to the concept of ‘too-big-to-fail.’ But this bill makes significant strides toward preventing the kind of financial meltdown that we saw in the fall of 2008.”

Dear Senator Cantwell:

In response to your request, I am writing to provide my views on the clearing requirement in Title VII of H.R. 4173, the “Wall Street Transparency and Accountability Act of 2010.” The legislation reported by the Conference Committee is strong, comprehensive and historic. The legislation mandates the clearing and transparent trading of standardized over-the-counter derivatives and comprehensive regulation of derivatives dealers.

The bill explicitly requires that swap dealers, major swap participants and financial entities use a clearinghouse for standardized or “clearable” derivatives transactions. Under the bill the CFTC and SEC are required to promulgate rules and regulations to provide for the mandatory clearing of such swaps. Commercial end users are exempt from this clearing requirement, as are customized swaps, and the Commission is directed to consider whether to exempt small banks, savings associations, farm credit institutions and credit unions from the clearing requirement.

I believe that a significant portion of the market will be subject to this mandatory clearing requirement. Although estimates vary, the CEO of one of the largest financial institutions and swap dealers in the U.S. has publicly testified that as much as 75 to 80 percent of the over-the-counter derivatives marketplace is standard enough to be centrally cleared. While we do not know for certain what portion of the standard market is between and amongst financial entities, data from the Bank for International Settlements indicate that more than 85 percent of the entire over-the-counter derivatives marketplace is between or amongst reporting swap dealers and other financial entities.

These clearing requirements, together with the trading requirement and comprehensive dealer regulation, will greatly reduce risk and enhance transparency in these markets.

Thank you for all of your contributions toward this landmark legislation.

Sincerely,

Gary Gensler
Chairman

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