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November 06, 2009 at 07:00 PM
WASHINGTON BUREAU — The Obama wants to continue to let life insurers and others trade customized derivatives, Michael Barr said Thursday.
Barr, assistant secretary of the Treasury for financial institutions, spoke here at an ALI-ABA Conference on Life Insurance Company Products.
As the Over-the-Counter Derivatives Market Act of 2009 bill makes its way through Congress, there will be “disagreements this way and that way how we define who is and who isn’t an end-user,” Barr said.
But “a core principal that needs to be preserved–that will be preserved–[in any legislation regulating the credit default swaps market] is that end users will have the flexibility to customize derivatives,” Barr said.
The OTC derivatives bill would require that major financial players, such as banks and hedge funds, that are speculating on derivatives to handle transactions through exchanges.
But airlines, manufacturers, farmers and other “end users” that use derivatives to hedge against business risk would be exempted from the requirement to feed transactions through exchanges.
Life insurers would be exempt when they were using derivatives contracts to manage the interest rate risk and capital-loss risk associated with the long-term securities that fund insurance products.
