Lobbyists stress industrial impact of derivatives rules

Lobbyists opposed to new curbs on the multi-trillion dollar market for financial derivatives are trying to shift lawmakers' attention away from Wall Street to the impact the rules would have on big industrial businesses.

The Obama administration and congressional Democrats are working on a proposal to rein in the market for derivatives by trying to move most of the financial transactions onto central clearinghouses or public exchanges. The market is now largely opaque and unregulated, and many critics and government officials blame derivatives for exacerbating the financial crisis last year.

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Credit default swaps, one form of derivatives, were central to the downfall of Lehman Brothers and American International Group (AIG) and the ensuing credit crisis.

House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.) circulated a 187-page bill on the issue on Friday evening and will hold a hearing on Wednesday. Frank is eying a vote on the legislation in his committee before the end of October.

Financial and business lobbyists, alongside centrist Democrats, have been making the case that some derivatives are so tailored to specific business needs that they should not be part of the new set of clearinghouses and exchanges.

The effort aligns Wall Street banks that are the primary dealers of financial derivatives with big businesses that are largely the banks' clients. The business groups formed The Coalition for Derivatives End-Users to press their argument, and on Friday they sent a letter to senators asking them to preserve the market for customized derivatives.

The effort is organized by the Business Roundtable, National Association of Manufacturers and U.S. Chamber of Commerce, and the letter was signed by more than 170 organizations. "By insulating companies from risk, customized OTC derivatives provide businesses with access to lower cost capital — enabling them to grow, make new investments and retain and create new jobs," the organizations wrote.

New Democrats, a group of business-minded Democrats in the House, praised Frank's bill on Friday for helping those "end users."

Rep. Melissa Bean (D-Ill.) said the legislation would provide "robust and dynamic oversight" of the market, "while preserving appropriate risk-management tools for end users."

Rep. Michael McMahon (D-N.Y.), another New Democrat, said Congress was making progress on the issue and some of the earlier criticism to outlaw the market was misplaced.

"A year ago, many critics of derivatives were ready to eliminate the entire over-the-counter market. This reaction was unreasonable and not in the best interest of our economy," McMahon said.