A Fly-In to Keep Capital From Moving Out
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Hundreds of rules continue to be proposed, tweaked, tinkered with, and hashed more than a year after Dodd-Frank was signed into law. Among the most significant in the works is a proposed rule that would require “end-user” companies to post margin, or collateral, when using derivatives. This could have devastating effects on job creation and our already fragile economy. End users are companies that use derivatives to hedge business risk – the beer maker who wants to lock in the price of aluminum or barley or the airline who locks in the price of fuel. By using derivatives to swap a variable price for a stable price, companies protect themselves from volatility and prevent costs from going up for the consumer.
Tomorrow, corporate treasurers and representatives from these end-user companies will participate in a Coalition for Derivatives End-Users fly-in to give members of Congress and regulators first-hand accounts of the potential consequences of having to put up cash collateral for everyday transactions. Without an exemption from margin rules, companies will be forced to sideline potentially trillions of dollars in capital that would otherwise go toward business expansion and hiring workers. Congress understood the importance of protecting end users from government-mandated collateral requirements, yet regulators appear to be resolved to impose margin on end-users, despite Congressional intent to the contrary.
The fly-in will be an important step to make the case to regulators that end-users weren’t the cause of the financial crisis, and therefore, shouldn’t be harmed as part of the solution. We’ve been working with Congress to make sure their intent is crystal clear, which is why we strongly support HR 2686, the Business Risk and Price Stabilization Act of 2011, a bipartisan bill that would create an end-user exemption from margin requirements and go a long way toward reducing some of the uncertainty facing the American business community.
We look forward to hearing from Rep. Michael Grimm (R-NY) and Rep. Bill Owens (D-NY), two of the bill’s co-sponsors, who will discuss the legislation at tomorrow’s fly-in. This bipartisan legislation, also co-sponsored by Rep. Gary Peters (D-MI) and Rep. Austin Scott (R-GA), will help ensure that Congressional intent is honored while not putting an unnecessary burden on end-users. This is one tweak we need to prevent our economy from slipping further toward another recession.