Senate Dems push for stronger international swaps rules

"The sheer size and complexity of these institutions necessitates looking at each firm collectively, and across corporate forms and national boundaries," the senators write in the letter. "The activities of subsidiaries, affiliates, branch offices, and off-balance sheet entities may all lead to risk and losses that can devastate a financial institution, and the economy."

They add, "A wide range of offshore and cross-border transactions in swaps, including swaps where one of the counterparties is a foreign branch, foreign subsidiary, or foreign affiliate of a U.S. financial institution, have a direct and significant effect on the U.S. economy and financial stability."

In July, the CFTC proposed a system of "substituted compliance," whereby foreign regulatory oversight could stand in for Dodd-Frank Act rules, if the regulation is sufficiently rigid.

The group of Democrats wants the CFTC to increase the conditions for granting that substituted compliance by requiring that foreign government agencies sign an agreement to cooperate with the Federal Deposit Insurance Corporation. They also ask the CFTC to regularly review the foreign regulations to make sure the standards remain strong.

In the letter, the lawmakers also express concern about the lack of regulatory requirements for swaps that are not backed by an American person or firm.

"As we saw clearly in the 2008 financial crisis, and in previous crises, even when an activity or vehicle is legally separate from a U.S. person, the U.S. sponsor of that entity or activity steps in, placing the risk back onto U.S. taxpayers," they write.

The six signers on the letter are Sens. Sherrod Brown (D-Ohio), Carl Levin (D-Mich.), Tom Harkin (D-Iowa), Elizabeth Warren (D-Mass.), Jeff Merkley (D-Ore.) and Dianne Feinstein (D-Calif.).