Citigroup Inc (C)’s Defense of Dodd-Frank Swaps Push Out Provision Fix

Citigroup C HQ

Citigroup Inc (NYSE:C)’s Executive Vice President for Global Public Affairs, Ed Skyler, took to the Citi Blog to defend its efforts to support banks both small and large that lobbied for the swaps push-out provision. The “swaps push-out” provision is an amendment to section 716 of Dodd-Frank Act. Section 716 prohibits Federal Government Bailouts of swaps entities and would require banks to spin off certain derivatives trading activities into units that don’t enjoy access to the government safety net.

In the blog, the bank reiterated its support for financial reform and Dodd-Frank, crediting the bill with strengthening our financial system except for the “swaps push-out”, which was amended in the spending bill that recently passed the House. The change has received complaints from consumer groups and Democrat Senator Elizabeth Warren, and House Minority Leader Nancy Pelosi.

Citi and other banks lobbying to have the provision removed, believe that the “swaps push-out” increases not decreases risk because it places additional costs on US financial firms and will impose new burdens on American companies who use swaps for legitimate purposes like those in the agricultural, energy, and farm commodities sectors.

Swaps Push-Out Provision

The Swaps Push-Out provision would require financial institutions to push certain types of derivative activities outside of the bank through a separate entity. The goal was to not allow those transactions to directly affect banks’ balance sheets, making the financial system safer.

Citi also noted that the proposed correction would only lift the “swaps push-out” restrictions for the agricultural, energy, and farm sectors.

Citi notes support of Bernanke, Volcker, Frank

Citi also notes that stakeholders from former Federal Chairman Ben Bernanke and Paul Vocker to Barney Frank co-author of Dodd-Frank have questioned the necessity of the Swaps Push-Out and raised concerns about unintended consequences.

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