Thursday, July 15, 2010

Financial regulatory reforms aimed at Wall Street may have big implications in rural America

President Obama's financial regulatory reform bill, passed today, is designed to fix the problems that caused the banking crisis, but it appears likely to have wide impact in other industries, including agriculture. "The bill will touch storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus, attesting to the sweeping nature of the legislation, the broadest revamp of finance rules since the 1930s," Michael M. Phillips of The Wall Street Journal reports. "In Nebraska farm country, those in the business of bringing beef from hoof to mouth are anxious, specifically about the bill's provisions that tighten rules governing derivatives." In fact, it is the "the part of the bill aimed directly at Wall Street that might end up touching most lives in rural America," Phillips writes.

Some in agriculture worry that the "coming curbs will make it riskier and pricier to do business," Phillips writes, while others "hope the changes bring competition that will redound to their benefit." Much of the focus surrounding the financial crisis has been placed on derivatives, financial instruments whose value derives from something else, such as like interest rates or heating-oil prices. Since derivatives originated in agriculture after the Civil War as crop futures, many in agribusiness are worried what effects the bill will have. (WSJ graphic)
"When they create a new regulator, it really scares us," Nate Gengenbach, vice president of commercial and agricultural lending at Five Points Bank in Hastings, Neb., told Phillips. "The new law requires most derivatives transactions be standardized, traded on exchanges, just like corporate stocks, and funneled through clearinghouses to protect against default," Phillips writes. Some predict these restrictions aimed at big players will have large effects on small farmers, while others say the regulation will push "money from the private market to the exchanges and creating more competition that  will benefit farmers." (Read more)

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