Turf fight in Congress: Peterson tries to keep derivatives regulation in his Ag Committee

[Editor's note: This story originally appeared in the 2/27 issue of PIM's Weekly Report.]

There hasn’t been a lot of attention so far to the mammoth task of reworking federal financial regulations in the wake of the Wall Street-induced economic crisis, but jurisdictional battles are already brewing in Congress. And one of the most central involves Minnesota Rep. Collin Peterson (pictured) (Democrat-7th District) and the House Agriculture Committee he chairs.

At issue, ultimately, is how the regulatory oversight of financial derivatives will be divvied up between the federal agencies and Congressional committees that have a piece of the action. House and Senate agriculture committees are responsible for overseeing the Commodity Futures Trading Commission due to CFTC’s traditional role in overseeing ag-related futures trading. Through the years, however, the CFTC has seen its authority grow to encompass some other sorts of financial instruments as well.

A couple of weeks ago, the Ag Committee approved a bill that would, in the words of a Wall Street Journal report, "give the CFTC primary oversight of derivatives that trade outside of traditional exchanges such as the New York Stock Exchange. The bill would limit the role of the Federal Reserve in the oversight." The Journal also reported that Peterson’s ag committee struck from the bill a provision that would have outlawed so-called "naked" credit default swaps–the speculative purchase of the swaps by market players who have no ownership stake in the underlying securities.

Peterson is said to be House Speaker Nancy Pelosi’s go-to guy on the regulation of credit default swaps, but the Ag Committee’s move reportedly angered both the White House and Rep. Barney Frank (D-MA) (who chairs the House Financial Services Committee), who did not want to see Peterson’s committee wading into the regulatory fray yet.

A Washington source close to the jurisdictional debate tells PIM there are longstanding tensions between the two committee chairs: "Barney Frank and Collin Peterson’s personalities–well, to say they don’t mesh is probably the best way to put it. And Barney has been Pelosi’s point person on so many of these issues. More than anyone really sees.

"A lot of people see Collin’s effort to hold on to these [non-ag financial oversight responsibilities] as his last stand," the source says. "The problem that you have here, not to impugn Peterson at all–he was an auditor in his former life–is that the ag committee does not have the resources to stay on top of what’s happening in the derivatives world, which is a $50 trillion market. It’s even tough for Financial Services to find a requisite number of people who understand it.

"I don’t think you’ll see this bill make it out of the financial services committee alive, at least in its present form. But you should never underestimate the historical and traditional nature of these committees. The tendency is always to jealously guard their areas of jurisdiction, because that’s really all they have."

A loss of some financial regulatory powers could also strike a blow to the fundraising prospects of Peterson and other ag committee members, since it would make them less vital to donors in the so-called FIRE (finance, insurance, real estate) sector. According to campaign finance data from the Center for Responsive Politics, Peterson has raised $615,000 from FIRE donors in his career, placing that sector third among his donor base after agribusiness ($2 million) and labor ($1 million).