Senator Warren Raises Concerns over CFTC’s Proposed Rule, Risks to Financial System
“These rules would weaken margin requirements and restrictions on using money market funds in uncleared swaps that are currently in place to protect market participants.”
Washington, D.C. – Today, U.S. Senator Elizabeth Warren (D-Mass.) sent a letter to the Commodity Futures Trading Commission (CFTC), urging the Commission not to move forward with proposed rules that would weaken margin requirements and restrictions on using money market funds in uncleared swaps. The current proposal would roll back current protections that are in place to protect market participants.
In 2010, the Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which strengthened the CFTC’s regulatory authority to oversee the swaps market – transactions that were previously unregulated and at the center of the 2008 financial crisis – and impose margin requirements on swap dealers to protect the financial system.
“The Commission is now proposing to weaken these existing margin requirements and collateral restrictions that apply to swap dealers and major swap participants, rolling back important Dodd-Frank Act reforms and increasing risks to the stability of our financial system,” wrote Senator Warren. “I urge the Commission not to move forward with this proposed rule and maintain existing regulations for seeded funds and the use of money market funds in uncleared swaps.”
In the letter, Senator Warren raised concern with both the CFTC’s Seeded Funds and Money Market Funds Proposals. The first would relieve swap dealers and major swap participants from the requirement to post an initial margin when they engage in uncleared swaps with eligible seeded funds. The Money Market Funds Proposal would allow swap dealers to use money market funds for eligible initial margin collateral, which is currently restricted.
“If finalized and implemented, the proposed rule would differentiate the rules governing swaps between those that are covered and not covered by Prudential Regulators, introducing inconsistency among U.S. banking regulators’ rules,” wrote Senator Warren. “The CFTC proposal would loosen margin requirements that were designed as ‘the most basic risk management tool’ and considered ‘best practice and a foundation for systemic stability’ – creating new potential vulnerabilities.”
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