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Good afternoon. I thank the Chamber of Commerce for inviting me to speak with you today on regulatory reform of over-the-counter (OTC) derivatives, also known as swaps. Today’s Capital Markets Summit comes only two days after the Senate Banking Committee passed financial reform legislation that makes historic progress toward comprehensive regulatory reform of the OTC marketplace. I look forward to working with Chairman Dodd and Senate Agriculture Committee Chairman Blanche Lincoln in the coming months to build off that progress. It is an honor to speak after Chairman Lincoln, who will be instrumental in the effort to bring reform to the derivatives marketplace.
I also want to thank the Chamber for the constructive exchange of ideas we’ve had since last fall regarding this very important effort. Furthering up on these discussions, I would like to focus specifically on two critical items still being debated. First, exemptions for end-users from clearing. Second, mandated transparency – through exchanges and other regulated trading venues – to benefit the economy and the businesses you represent.
Now, some in the financial industry have said that the safer market regulations and transparency we are proposing may slow down capital markets or raise costs. Well, we have all seen how “expensive” derivatives markets can be without sufficient regulation. We are calling for new safety mechanisms – for new transparency requirements – precisely because the current system cost taxpayers very heavily.
Our financial system is a complex network. It handles an enormous volume of traffic – the U.S. over-the-counter derivatives market is approximately $300 trillion notional amount. The volume is growing on a global scale, as is the network’s complexity. When faced with a similar challenge, earlier generations invented traffic lights and street lamps to lower risk and shine light on a complex and increasingly voluminous network. Now, do yellow and red lights slow down traffic? Do street lamps bring sunshine on otherwise dark and dangerous roads? Absolutely. Could we run a high volume transport network safely without them? Absolutely not. Traffic lights may add costs for all network users, but can anyone imagine a traffic system without safety regulation? Of course not.
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