Elizabeth Warren's Warnings About Financial Reform Are Already Coming True [View all]

By Danny Vinik

hen Congress passed legislation in December to fund most of the government through the remainder of the fiscal year, Senator Elizabeth Warren and liberal Democrats nearly killed the bill over a policy rider that rolled back a piece of the Dodd-Frank financial regulatory bill. It was a sign, they warned, of what’s to come.

Just a few days into the 114th Congress, those warnings are proving prescient. On Thursday afternoon, the Senate overwhelmingly passed legislation to renew the Terrorism Risk Insurance Act (TRIA), which expired at the end of 2014 and allows the federal government to backstop commercial insurance companies up to $200 million in the case of a terrorist attack. But the bill, which the House passed on Wednesday, also eliminates another provision in the financial regulatory bill. Wall Street’s strategy to dismantle Dodd-Frank is only picking up speed.

The regulation that TRIA rolls back is not pivotal to Dodd-Frank. It gives the Securities and Exchange Commission (SEC) and Commodities Future Trading Commission (CFTC) oversight over collateral and margin requirements for certain financial trades—known as derivatives—with commercial end users. It’s not as important to Dodd-Frank as Section 716, which prevented banks from using taxpayer-backed money to trade in certain high risk financial products and was eliminated in the year-end funding bill known as the CROmnibus. But it still weakens the law. “The oversight of margin and collateral for derivatives transactions is a basic regulatory safeguard,” Americans for Financial Reform wrote in an open letter opposing the provision. “Even though regulators have not proposed to require any margin of commercial end users at this time, it is inappropriate to completely eliminate the ability of central derivatives market regulators to take action in this important area.”

The regulation has nothing to do with terrorism risk insurance; it was slipped into the bill so that it would pass without much fanfare. New York Senator Chuck Schumer, who has been one of the leading advocates for TRIA, called the provision “a pound of flesh in a must-pass piece of legislation.” In other words, it’s not a good change but it’s the price liberals must pay to pass TRIA.

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http://www.newrepublic.com/article/120733/democrats-pass-terrorism-risk-insurance-bill-weakens-dodd-frank