House agriculture panel approves derivatives bill

WASHINGTON --- Legislation to regulate for the first time globally traded derivatives, the complex instruments that helped touch off the financial crisis, moved closer to House enactment Wednesday.

The debate and swift drafting of the bill by the House Agriculture Committee was another step forward in President Obama's plans to rewrite the nation's financial rule book. A voice vote by committee members sent the bill forward.

As reshaped by the panel's chairman, Sen. Collin Peterson, D-Minn., the bill resembles the derivatives bill cleared last week by the House Financial Services Committee. The administration hailed that move as a critical step toward throwing sunlight on an opaque and growing $600 trillion global market.

The legislation requires derivatives trades to go through clearinghouses to bring transparency, and subjects financial firms dealing in the instruments to new capital requirements.

"The time has come for this committee to act," Mr. Peterson said. "If this bill gets delayed too long, it risks becoming bogged down by the politics that often accompanies an election year."

If that occurred, the big banks would triumph because they would get a $700 billion federal bailout without new regulation, Mr. Peterson said.

Once the two committees' measures are reconciled, the legislation would go to the full House.

A final bill isn't likely to clear Congress and land on Mr. Obama's desk until December at the earliest, Rep. Barney Frank, D-Mass., the Financial Services chairman, has said.

The proposals are designed to bring transparency to, and prevent manipulation in the sprawling $600 trillion derivatives market. Credit default swaps, a form of insurance against loan defaults, account for an estimated $60 trillion of that market. The collapse of the swaps brought the downfall of Wall Street banking house Lehman Brothers Holdings Inc. and nearly toppled American International Group Inc. a year ago at the height of the crisis, spurring the government to support the insurance conglomerate with about $180 billion in aid.

The value of derivatives hinges on an underlying investment or commodity -- such as currency rates, oil futures or interest rates. The derivative is designed to reduce the risk of loss from the underlying asset.