Congress Sprints Toward the Finish Line

With the Fourth of July recess behind them, members returned to Capitol Hill to face a long laundry list of legislative initiatives that Senate Democrats were unable to finish in June but would like to finish prior to the month-long recess that is slated to begin August 6th. With the House of Representatives having completed action on the bulk of the high profile issues, the spotlight is once again squarely on the United States Senate. Unemployment insurance benefits and passage of the financial market regulatory reform conference report remain at the top of the Senate’s agenda, but other “big ticket” items such as immigration reform, climate change legislation, an energy bill and campaign finance reform require heavier lifting and are likely to be pushed into 2011.

In addition, The Hill newspaper reports that Supreme Court nominee Elena Kagan could also get her confirmation vote by the Judiciary Committee as early as the week of July 11th, with leaders aiming for a final floor vote later in the month. A week of Senate floor time will be taken up by pro and con floor speeches on Kagan, thereby placing additional pressure on an already packed Senate agenda.

 The road will not get any easier following the August recess. When members return on September 13th, they will be faced with the thirteen fiscal year (FY) 2011 appropriations bills prior to the end of the current fiscal year on September 30th. As has become the custom, it is likely that members will again pass a continuing resolution (otherwise known as a “CR”) that will fund the government agencies that are not cleared prior to the end of the fiscal year until a “time certain” in the future. Although House Appropriations subcommittees have marked up six of the annual spending bills, none have yet been through the full committee.

Ultimately the progress that can be made in moving legislation off of the Senate floor will largely be determined by the Republican caucus. In the weeks leading up to the November elections, Senate Republican Leader Mitch McConnell (D – KY) will hold a strong hand when it comes to moving any remaining legislative issues.

Financial Market Regulatory Reform Legislation Nears the Finish Line

The June 28th death of Senator Robert Byrd (D – WV) has left the majority party in the Upper Chamber with one less vote to work with as they strive to complete work on the financial market regulatory reform legislation (HR 4173 — H Rept 111-517). West Virginia Governor Joe Manchin III (D) is expected to name a successor in the very near future, thereby bolstering the majority and clearing the way for a close vote on final passage of the financial regulatory reform measure.

The Democratic leadership entered the July Fourth recess two votes shy of the 60 needed to end debate and send the bill to President Obama’s desk. Even though Senators Scott Brown (R – MA), Olympia Snowe (R – ME) and Susan Collins (R – ME) voiced concerns over the conference report, they eventually indicated that they would vote for the measure – thereby bolstering prospects for clearing the final procedural hurdle before final passage. However, prospects continued to hinge upon the vote of the next Senator from West Virginia, as Senator Ben Nelson (D – NE) continued to have reservations and remained reluctant to vote in the affirmative. If the late Senator Byrd’s successor is supportive of the legislation, it is estimated that GOP objections would require at least a week’s debate on the bill.

Throughout the legislative process, AgriBank, FCB and the Farm Credit System (FCS) worked to address a number of issues. Unfortunately, AgriBank and the other Farm Credit banks were NOT included in the end user clearing exemption for over-the-counter (OTC) interest rate derivatives for practical purposes due to the size limitation of $10 Billion for FCS institutions. Conversely, captive finance companies (John Deere Credit, Ford Motor Credit, etc) were included in the exemption from the clearing requirements as long as 90% of their loans are for products manufactured by the parent company or another subsidiary of the parent company. 

The conference report DOES provide a possible exemption from the clearing requirement for smaller sized financial institutions. Under a new provision, community banks, savings banks, Farm Credit Institutions and credit unions with assets of $10 Billion or less may be considered by the Commodity Futures Trading Commission (CFTC) for the clearing exemption. Unfortunately, the $10 billion size limitation effectively precludes AgriBank and the other Farm Credit banks from gaining an exemption.

AgriBank and the FCS was successful in including language clarifying that System institutions are not swap dealers or major swap participants. This relieves AgriBank from the registration and reporting requirements with which major swap dealers will be required to comply. In addition, securities issued by the FCS were exempted from the Volcker rule (otherwise known as “proprietary trading”) along with Treasuries and other Agency issuers such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank System.

It is also noteworthy that the fiduciary rule (Section 731, Title VII) that would have made it a conflict of interest for swap dealers to execute derivatives with Special Entities (i.e., Government Agencies and municipalities) was modified to a code of conduct standard for swap dealers to follow when dealing with Governmental Entities. The Farm Credit System is exempted from the systemic risk oversight provisions, as well from oversight of the newly created Consumer Financial Protection Bureau (CFPB).

Although final passage of the conference report is all but certain, the next phase will be implementation, which will provide opportunities to continue highlighting issues that were not addressed during the legislative process. For example, Congressional Quarterly (as well as other Capitol Hill sources) report that there is still concern among members of both parties about the treatment of “end-users” of derivatives. The underlying issue is that companies

which use derivatives to hedge against ordinary business risk (such as spikes in energy prices or swings in exchange rates) might be subject to onerous capital requirements set by financial regulators to limit trades by hedge funds or other speculators. As such, Senate Banking Committee Chairman Chris Dodd (D – CT) and Senate Agriculture Chairman Blanche Lincoln (D – AR) wrote to their House counterparts on June 30th in an attempt to clarify the legislative intent, saying the legislation should be interpreted as barring regulators from requiring capital set-asides for end-users. AgriBank and the Farm Credit System will continue to work on this and other issues throughout the regulatory process to ensure that the System’s concerns are addressed.

Congressional Committees Hold 2012 Farm Bill Hearings

With many provisions of the Food, Conservation and Energy Act of 2008 set to expire in September of 2012, the House Agriculture Committee held a series of field hearings to gather input from a broad range of agriculture stakeholders. With the 111th Congress coming to an end, a lot could change after the November elections; however farmers, ranchers, producers, and scholars are all taking advantage of an early opportunity to shape the 2012 Farm Bill debate.

Since the end of April, House Agriculture Committee Chairman Collin Peterson (D-MN) has been leading hearings across the country - with growers and producers from all areas of agriculture testifying in front of the committee. Although a wide range of topics were touched upon during each hearing, the four major issues have already pushed their way to the forefront- safety nets, crop insurance, conservation, and global competitiveness. The most common frustrations voiced regarding these provisions of the current farm bill were that programs in these areas are not representative of current market data and information and that the programs are slow, complicated, and lack exit options.

Likewise, the Senate Agriculture Committee opened with its first committee hearing on June 30th in Washington D.C. Committee Chairman Blanche Lincoln (D – AR) noted in her opening statement that “rather than start from scratch or from some new fangled idea cooked up in Washington or in some college professor’s office, we need to reassure our farmers and ranchers that we will start where we left off: the 2008 Farm Bill. If we can do better by our producers in 2012, great. But, if not, current law serves as the benchmark from which we will work.”

As the relevant committees begin to evaluate the next Farm Bill, the economy continues to be a challenging obstacle with mandatory spending continuing to be the focus of increased attention. However, there is a general belief among some that this sense of fiscal responsibility does not mitigate the responsibility felt by some members to the farmers and ranchers they represent. Representative Leonard Boswell (D- IA) acknowledged that, “Budgets are tight, but tight budgets do not mean that we jeopardize the risk management tools that we have today or put into question what improvements we must make in the future.” Additional Farm Bill hearings are expected over the next few months.