House Democrats unanimously supported a terrorism insurance bill that would hogtie regulators concerned with certain types of risky financial deals.
The legislation passed the House on Wednesday by a vote of 417-7, with the slim dissenting minority consisting entirely of Republicans.
It contains a provision that would allow “non-financial firms” to deal with banks without putting up collateral–a move that could see corporate America and Wall Street enter agreements without crucial safeguards.
Public Citizen financial policy advocate Bart Naylor said that the move might not have immediate consequences. The Commodities Futures Trading Commission is already planning on permitting deals on bona fide hedging to be made without collateral, and many banks impose their own “margin requirements.” However, the law, if passed, could remove a crucial tool from regulators’ arsenal.
“It paves the way for the emergence of a future problem,” he said. “Alert regulators would appeal to Congress to restore their power.”
The provision could allow a major “non-financial” corporation to engage in the sort of dealing that led to the infamous 2008 collapse of insurance firm AIG.
Sen. Chuck Schumer (D-N.Y.) has voiced his displeasure over the bill, raising the possibility that the deregulation could be removed in a conference committee–a panel assembled when the House and Senate reconcile two versions of the same act. A previous iteration of the proposal without the Dodd-Frank “non-financial firm” collateral requirement repeal had been passed in July 93-4 by the Senate.
The White House also said that it had “serious concerns” over the provision, according to The Hill, but did not say it would veto the entire Terrorism Risk Insurance Act.
