WASHINGTON -- Lobbyists and House Democrats working to roll back a key provision of Wall Street reform are taking liberties with the truth as they make their case ahead of a key House vote.
At issue is what kind of derivatives trades ought to be backed up by collateral and regulated. Because the bill, H.R. 992, involves complex financial products, members of Congress tend to look for outside validators when deciding how to vote. Backers of the bill, which is expected to receive a vote Wednesday afternoon, have been happy to provide them. A letter from Rep. Jim Himes (D-Conn.) to his colleagues claims three surprising supporters of the effort to loosen regulations on derivatives trades: former Rep. Barney Frank (D-Mass.), a chief sponsor of the historic Dodd-Frank reform law that would be altered by the latest bill; Sheila Bair, the tough, reform-minded former head of the Federal Deposit Insurance Corporation; and Rep. Maxine Waters (D-Calif.), the progressive ranking member on the House Financial Services Committee.
But none of that is quite right.
"H.R. 992 alters a provision of Dodd-Frank that is opposed by a wide range of experts and regulators, including former Chair of the House Committee on Financial Services Barney Frank," reads the Himes letter.
Yet earlier this summer Frank was quite clear, when asked about the bill on "Real Time with Bill Maher," that he opposed it.
"Citigroup wrote a bill that's about gutting a provision of Dodd-Frank called 'swaps pushout' that says you can't have derivatives in the place where you have your grandma's savings account, the insured depository. That bill passed the House Financial Services Committee. Only six Democrats voted no. It had bipartisan support. And Barney, you let it go through the committee when you were in charge of it, and you didn't even call for a recorded vote on the predecessor to H.R. 992," guest Alexis Goldstein charged.
"Yes, and do you want to know why?" Frank responded. "Because I knew it was going to be defeated in the Senate. In fact, it didn't even come up in the Senate … The fact is, when I was in the committee, I was in the minority, I knew we didn't have the votes to stop it. I wanted to be able to kill it. I didn't want it to get an overwhelmingly pro recorded vote. You just cited how big it got. I thought it was better not to let that happen, so it could die in the Senate."
The advocates are also claiming that former FDIC head Bair, who has much credibility within bank reform circles, is a supporter. Told by HuffPost that her name was being used to validate the bill, she laughed.
"They keep dragging me into this," Bair said. "I actually went so far as to issue a statement on this because this is really annoying."
The statement, provided by her office, reads: "I opposed the original proposed Lincoln Amendment as it would have pushed all derivatives activity completely outside of regulated bank holding companies. I support the ability of bank holding companies to make markets in derivatives as this would keep the activity subject to prudential oversight by the Fed. But this activity should be done outside of insured banks and only in non-FDIC insured affiliates. It should not be funded with FDIC insured deposits. I do not support efforts to repeal section 716."
But on the House floor Wednesday, Rep. Brad Schneider (D-Ill.), who beat a progressive opponent in a high-profile Democratic primary, still claimed falsely that Bair is a supporter.
The letter being passed around by Himes also notes that the Financial Services Committee's current top Democrat, Waters, backed a similar bill in 2012. But Waters, like Frank, simply allowed the bill to go through, knowing it would be blocked in the Senate. Today, she is a public, outspoken opponent of weakening derivatives regulation, which the backers of the bill fail to mention.
The Himes-backed measure would in large part undo Section 716 of the 2010 overhaul of financial regulation known as Dodd-Frank. That section basically forces financial institutions to move some of their swaps business out of their banking subsidiaries and into separately capitalized affiliates, by prohibiting entities that house those swaps activities from receiving taxpayer assistance in the form of access to cheap funding from the Federal Reserve and deposit insurance from the FDIC.
The measure specifically prohibits banks that house these activities from having deposit insurance.
Though the 2010 section allows banks to keep the vast majority of their swaps business -- including derivatives tied to interest rates -- inside their banking subsidiaries, Wall Street has complained that the provision risks increasing costs for swaps users, introduces needless complexity and may make it harder for regulators to deal with a failing financial giant. Some regulators share those views, though others disagree.
The Treasury Department opposes the Himes-backed measure, and Treasury Secretary Jack Lew earlier this year told members of Congress that approval of the proposal would be "disruptive and harmful" to efforts underway at federal regulatory agencies to implement key elements of Dodd-Frank.
The White House also has told Congress that it opposes the measure, though it stopped short of issuing a veto threat.
The Obama administration's current position represents a reversal of its position in 2010, when top Treasury officials fought against legislative efforts to enact the provision into law.
Despite the administration’s current stance, 22 of the 28 Democrats on the House Financial Services Committee who voted on the swaps bill this year supported the proposal to roll back that aspect of Dodd-Frank. Rep. Mel Watt (D-N.C.), President Barack Obama’s nominee to lead the Federal Housing Finance Agency, was among those voting in favor of weakening the financial reform law.
Himes reportedly told Bloomberg News earlier this year, "If I were betting, I would say none of these bills will become law."
Elizabeth Kerr, Himes' communications director, said in an emailed statement after this story was published:
"Rep. Himes continues to be a strong supporter of Dodd-Frank and is pleased this legislation, which improves oversight of derivatives, passed the House today. This bill got 70 Democratic votes -- a strong bipartisan showing. Last Congress, Ranking Member Frank asked Rep. Himes to lead the effort on this provision. All of the quotes provided in our factsheets are accurate and contain cites, including dates, and our office never received any requests from those quoted to have their stated support eliminated from our background materials."
It's unclear how the bill improves regulators' oversight of big banks' derivatives activities. Kerr did not elaborate.
But on the House floor, Himes slammed "bloggers" and the press for turning the debate into a "morality play."
"This year, exactly the same bill comes before us and we've ginned up the press, we've ginned up the bloggers. This has become a 'gift to Wall Street.' What is different? What is different from what passed happily in a bipartisan fashion last Congress?" Himes said. "What has changed is we no longer do the hard work of finding finely balanced regulation like we do on water or on air. In financial services, in Dodd-Frank today, we have a morality play."
UPDATE: 2:45 p.m. -- Himes' bill passed the House Wednesday afternoon by a 292-122 vote -- a closer margin than had previously been expected. The vote in committee was a landslide 53-6. With more attention on the bill, a majority of Democrats opposed it on the floor.
This article was updated further to include the comment of Elizabeth Kerr, Himes' communication director.