The House of Representatives passed legislation that could loosen some of the restrictions imposed by Dodd-Frank on big banks. The bill, Promoting Job Creation and Reducing Small Businesses Burden Act, passed by a margin of 271-154, and contained the following measures:
- Delay implementation of the “Volcker Rule” until 2019.
- Exempt some private equity firms from registering with the Securities and Exchange Commission.
- Loosen regulations on derivatives.
- Permit some small, publicly traded companies to omit historical financial data from their financial filings.
Delaying implementation of the Volcker Rule until 2019 is one of the biggest reforms contained in this legislation. The Volcker Rule is named after former Federal Reserve Chairman Paul Volcker and prohibits big banks from having relationships with or ownership in hedge funds or private equity firms. The Volcker Rules also requires big banks to sell off collateralized loan obligations (CLO’s), which are interests in bundles of loans that are sold to individual investors.
Another aspect of the bill exempts certain private equity firms from SEC registration. Securities law requires that firms that receive fees for banking activities, such as providing advice on mergers or selling debt securities, must register with the SEC. However, private equity firms typically only register as investment advisers and thereby escape many of the SEC’s rules and regulations. If private equity firms have to register as broker-dealers with the SEC, then greater compliance obligations will be imposed on them.
The bill also reduces regulations on derivatives by allowing firms that own commercial businesses to trade derivatives privately, thus escaping some of the oversight that comes with trading derivatives though central clearinghouses. Moreover, the bill prohibits regulators from requiring banks to take collateral from companies that buy derivatives.
29 of 188 Democrats joined the near-unanimous 242 Republicans who voted for the measure. The Senate has not voted on it yet, and may not be able to get the 60 Democratic votes that will be needed in order for it to pass there. If it does pass the Senate, the White House has threatened to veto the bill, saying that it “would weaken and undermine” Dodd-Frank.