Unregulated, opaque and dangerous derivatives were at the core of causing and spreading the 2008 financial crash. Not only were they packages of worthless financial products, but they also acted as a conveyor belt secretly distributing financial time bombs throughout the global financial system. That’s why the derivatives financial reforms are so critically important and why the CFTC is one of the most important financial regulatory agencies most people have never heard of.
That’s the context for the arrival of a new CFTC Commissioner, Rostin Behnam, who delivered an encouraging, historically-informed, nuanced speech to an audience at Georgetown University’s McDonough School of Business Tuesday afternoon, entitled “The Dodd-Frank Inflection Point: Building on Derivatives Reform.”
His themes were that the derivatives reforms in the Dodd-Frank Act were bold but necessary given the regulatory gaps starkly revealed during the 2008 financial crisis, and now, amidst intense “rhetoric” calling for regulatory rollbacks, we should “build” on those reforms, not dismantle them. Any changes, he added, must be based on facts and data, not arguments and claims, and be “narrowly tailored and surgical to ensure core reforms are kept whole and intact.”
Commissioner Behnam canvassed in some detail the four major swaps reforms in Dodd-Frank that have significantly contributed to post-crash financial stability: central clearing, exchange or SEF trading, data reporting, and capital and margin requirements. One thing is clear: he is delving into his role as CFTC Commissioner with a commitment to thoughtful, well-informed, and data-driven analysis. This is good news, because the data points overwhelmingly in one direction: Thanks to—not in spite of—the Dodd-Frank reforms, our financial markets are increasingly stable, fair, and transparent, creating the conditions for long-term economic prosperity that benefits all Americans. Repealing or even weakening those critical reforms will lead us inevitably to another devastating financial crisis. As Commissioner Behnam said, “it’s not a time to turn back.”
It remains to be seen how far Commissioner Behnam will be willing to go to address any real and claimed “unintended consequences” of the new derivatives rules. Having participated in more than 40 rulemakings at the CFTC, we’ll be watching with keen interest, hoping that he remain a strong defender of the risk-reducing reforms of the derivatives markets.
