By Jacob Bunge Of DOW JONES NEWSWIRES CHICAGO -(Dow Jones)- The shaky economic recovery in the U.S. could be damaged if new financial regulations require companies to post more collateral against their hedging activities, according to the president of the National Association of Corporate Treasurers. Applying the same rules to both Wall Street banks and agribusiness or manufacturing companies will mean that businesses have less money to invest in new ventures or building staff, according to Thomas Deas, treasurer for Philadelphia-based chemical company FMC Corp. (FMC) and president of the NACT. The group has estimated that if its members are required to post collateral against over-the-counter derivatives transactions, designed to protect against risk in interest rate or commodity market fluctuations, an average $269 million would have to be committed. "That's a dollar for dollar subtraction from money available to us in investing in new plants, equipment, R&D for new products and building inventories to support higher sales," said Deas, speaking at an event hosted by the Federal Reserve Bank of Chicago. "You take that out of the economy as a whole, depending on how these definitions come out, and that would be a net negative," he said. Ahead of this summer's enactment of the Dodd-Frank financial overhaul legislation, so-called end users of swaps lobbied hard for exemptions to rules that might require them to post collateral to guarantee their trades. They have fought to be exempt from rules that would require them to move their routine swaps into clearinghouses, which guarantee trades and require the posting of margin. They have also fought to be excluded from rules that might require them to post collateral against customized, over-the-counter trades. FMC is a member of the Business Roundtable, which represents chiefs executive of major U.S. companies, and also is a member of the Coalition for Derivatives End-Users, made up of companies that hedge financial risks in over-the-counter markets. The Dodd-Frank law carves out exemptions for end-users from clearing, and it also appears to exempt them from posting collateral on customized trades. The bill aims to impose regulations primarily on dealer banks and large players in the swap market known as "major swap participants." But the law also still creates some ambiguity as to how the exemptions will work. For instance, it leaves it up to the Commodity Futures Trading Commission and Securities and Exchange Commission to define in detail what entities will qualify as dealers or major swap traders. Deas said Friday that companies like FMC still fear they could be considered "major swap market participants" and thereby lumped in alongside banks, who are required to clear their swap transactions by posting collateral against outstanding trades. "I believe corporate treasurers should have the choice" of whether or not to back up trades through clearinghouses set up to handle swap deals, Deas said. Deas said that requiring buyers of swaps to back up their derivatives trades would be unfairly punitive. Companies like his represent only about 10% to 15% of the overall $615 trillion over-the-counter derivatives market, he said, and did not contribute to the systemic risk issues that arose in the 2008 financial crisis. "Don't throw us in the same paddy wagon as Fannie Mae, Freddie Mac and AIG," he said. Deas suggested that the focus on derivatives markets' role in the credit crunch was outsized, as derivatives write-offs made up only about 1.2% of overall bank write-offs throughout that period, he said. -By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com (Sarah N. Lynch in Washington, D.C. contributed to this article)
