Coalition for Derivatives End Users – Margin Survey Release
On March 26, 2014, the Coalition for Derivatives End-Users held a press briefing
to coincide with the release of their survey entitled “The
Impact of Margin Requirements on Main Street Businesses.”
Senator
Mike Johanns
Sen.
Mike Johanns (R-Neb.) said the Dodd-Frank Act has “led to consequences that
were not intended by anyone” and that margin requirements on end-users are one
example of this. He stated that these margin requirements will take capital out
of the economy and force it to be “put on the sidelines.” This result, he
said, would restrict the amount of capital that could be used for job creation,
investment, and growth while having a “profound impact” on consumers and
driving business overseas. He cited that 90 percent of Main Street businesses
said that setting aside capital for margining purposes would adversely affect
investment and research & development.
Johanns
noted that he is the co-sponsor of a bill, S. 888, with Sen.
Jon Tester (D-Mont.) to exempt non-financial firms from margin requirements. He
stated that “one-fifth of the Senate is onboard” with the legislation and that
they are from a wide political spectrum. He also noted that companion
legislation in the House, H.R. 634, passed
by a vote of 411-12 because “people realize this never should have happened in
Dodd-Frank.”
Johanns
expressed frustration with the Federal Reserve because they have not acted to
exempt end-users from these requirements, even though former Fed Chair Ben
Bernanke said in a hearing that he is “very comfortable” with the proposed
legislation to deal with the issue. Johanns also noted that the CFTC, SEC, and
G20 agree that non-financial end-users do not pose a threat to the economy.
He
concluded that the margin requirement on end-users would have a negative impact
on states across the country.
Luke
Zubrod – Chatham Financial
Luke
Zubrod, Director at Chatham Financial, walked through the findings of the survey
which analyzed the responses of 43 chief financial officers or corporate
treasurers. He noted that 86 percent of companies “indicate that having to set
aside collateral for their OTC derivatives transactions would adversely impact
business investment, acquisitions, R&D, and job creation.”
He
also noted that of the respondents: 62 percent use interest rate swaps; 79
percent use foreign exchange swaps; 44 percent use commodity derivatives; and
zero percent use credit default swaps.
Zubrod
said that 88 percent of respondents have not reserved cash or committed credit
in anticipation of these requirements and thus the economic impact of the rule
has not yet been felt.
Cross-border
concerns were also evident in the survey, he noted, citing that 44 percent of
their swaps include the U.S. and Europe and that 79 percent of firms said they
were “very concerned” or “moderately concerned” about cross-border reporting
requirements.
End-Users
Jim
Colby, Assistant Treasurer, Honeywell International, Inc, and Tim Weiner,
Global Risk Manager, MillerCoors LLC, expressed how important derivatives are
to their businesses as a means of hedging and reducing their risk. Colby said
that if the requirements remain in place, his organization will have to divest
a quarter of a billion dollars in collateral to meet margin demands.
Weiner noted that companies such as his do not pose systemic risk and that it
was not to the intent of Congress to impose margin requirements on end-users.
Note:
Sen. Tester was scheduled to attend the briefing but could not make it.
For
more information on the Coalition for Derivatives End-Users, please click here.
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On March 26, 2014, the Coalition for Derivatives End-Users held a press briefing
to coincide with the release of their survey entitled “The
Impact of Margin Requirements on Main Street Businesses.”
Senator
Mike Johanns
Sen.
Mike Johanns (R-Neb.) said the Dodd-Frank Act has “led to consequences that
were not intended by anyone” and that margin requirements on end-users are one
example of this. He stated that these margin requirements will take capital out
of the economy and force it to be “put on the sidelines.” This result, he
said, would restrict the amount of capital that could be used for job creation,
investment, and growth while having a “profound impact” on consumers and
driving business overseas. He cited that 90 percent of Main Street businesses
said that setting aside capital for margining purposes would adversely affect
investment and research & development.
Johanns
noted that he is the co-sponsor of a bill, S. 888, with Sen.
Jon Tester (D-Mont.) to exempt non-financial firms from margin requirements. He
stated that “one-fifth of the Senate is onboard” with the legislation and that
they are from a wide political spectrum. He also noted that companion
legislation in the House, H.R. 634, passed
by a vote of 411-12 because “people realize this never should have happened in
Dodd-Frank.”
Johanns
expressed frustration with the Federal Reserve because they have not acted to
exempt end-users from these requirements, even though former Fed Chair Ben
Bernanke said in a hearing that he is “very comfortable” with the proposed
legislation to deal with the issue. Johanns also noted that the CFTC, SEC, and
G20 agree that non-financial end-users do not pose a threat to the economy.
He
concluded that the margin requirement on end-users would have a negative impact
on states across the country.
Luke
Zubrod – Chatham Financial
Luke
Zubrod, Director at Chatham Financial, walked through the findings of the survey
which analyzed the responses of 43 chief financial officers or corporate
treasurers. He noted that 86 percent of companies “indicate that having to set
aside collateral for their OTC derivatives transactions would adversely impact
business investment, acquisitions, R&D, and job creation.”
He
also noted that of the respondents: 62 percent use interest rate swaps; 79
percent use foreign exchange swaps; 44 percent use commodity derivatives; and
zero percent use credit default swaps.
Zubrod
said that 88 percent of respondents have not reserved cash or committed credit
in anticipation of these requirements and thus the economic impact of the rule
has not yet been felt.
Cross-border
concerns were also evident in the survey, he noted, citing that 44 percent of
their swaps include the U.S. and Europe and that 79 percent of firms said they
were “very concerned” or “moderately concerned” about cross-border reporting
requirements.
End-Users
Jim
Colby, Assistant Treasurer, Honeywell International, Inc, and Tim Weiner,
Global Risk Manager, MillerCoors LLC, expressed how important derivatives are
to their businesses as a means of hedging and reducing their risk. Colby said
that if the requirements remain in place, his organization will have to divest
a quarter of a billion dollars in collateral to meet margin demands.
Weiner noted that companies such as his do not pose systemic risk and that it
was not to the intent of Congress to impose margin requirements on end-users.
Note:
Sen. Tester was scheduled to attend the briefing but could not make it.
For
more information on the Coalition for Derivatives End-Users, please click here.