Senator Christopher J. Dodd
Chairman, Committee on Banking, Housing and Urban Affairs
United States Senate
534 Dirksen Senate Office Building
Washington, DC 20510
Senator Richard C. Shelby
Ranking Member, Committee on Banking, Housing and Urban Affairs
United States Senate
534 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Dodd, Senator Shelby and Senate Members of the Conference Committee on H.R. 4173:
Business Roundtable CEOs, who collectively employ more than 12 million Americans and generate nearly $6 trillion in annual revenues, are extremely concerned about the serious negative consequences of provisions included in the financial regulatory reform bill that passed the Senate on May 20.
The legislation grants the Securities and Exchange Commission authority to issue rules on proxy access, which we believe can only exacerbate the short-term focus that is widely considered to be a contributing factor to the financial crisis. The prospect of frequent election contests will create a perverse incentive for directors to focus on short-term stock price rather than the creation of long-term value. The provision also will allow special interest groups to exert undue influence and pursue a short-term agenda to the detriment of other shareholders. Such behavior already is evident in the practices of some hedge funds, which have encouraged companies they invest in to engage in practices that increase immediate financial returns to shareholders but that are harmful to longer-term growth, such as taking on increased debt loads and reducing capital investments.
We also wish to reiterate our deep concern about the derivatives regulation provisions included in the bill, as they fail to clearly distinguish between speculation and prudent risk management.
The bill imposes clearing exchange trading, capital and margin requirements on a variety of swaps, including those entered into by end-user businesses. These requirements are appropriate for dealer-to-dealer transactions, as well as transactions between dealers and entities that use derivatives for purposes other than prudent risk management but not for companies managing ordinary business risks.
By failing to provide a clear exemption for end users, the legislation imposes unwarranted costs on business that will result in job losses and slower economic growth. Our analysis suggests that a 3 percent margin requirement on over-the-counter derivatives, a conservative outcome if the derivatives provision were enacted into law, could reduce capital spending among S&P 500 companies by $5 to $6 billion per year, leading to a loss of 100,000 to 120,000 jobs.
Business Roundtable recognizes the need for new financial reforms and supports many of the provisions contained in the Restoring American Financial Stability Act. However, we remain convinced that in its effort to prevent a financial crisis from occurring in the future, Congress is punishing the vast majority of U.S. companies that had nothing to do with the recent crisis. As members of the Conference Committee on H.R. 4173, we strongly urge you to delete the proxy access provision in the bill and provide a clear exemption to end users in the derivatives regulation provision.
Thank you for your attention to these vital issues.
Sincerely,
John J. Castellani
C: Senate Members of the Conference Committee on H.R. 4173