House Agriculture Chairman Collin Peterson, D-Minn., said Tuesday he is "flat opposed" to allowing the Federal Reserve to regulate credit derivatives.

"I have made it clear that the Commodity Futures Trading Commission is the agency that has the knowledge and expertise in these markets," Peterson said. "I am flat opposed to the Fed having a role in clearing or overseeing these products. If I could have my way, the Fed would not be involved; however that is not the political reality of today."

Peterson made his remarks at a hearing to dissect his draft bill on derivatives regulation. The bill seeks to mandate clearing for over-the-counter products and rein in excessive speculation. It was unveiled last week at a time when the CFTC, the Securities and Exchange Commission and the Fed are still engaged in a jurisdictional battle over which agency should have authority over credit-default swap clearing.

Several exchanges, including CME Group Inc (CME) and IntercontinentalExchange Inc (ICE) are planning to offer clearing for credit derivatives. But while CME's platform would be regulated by the CFTC, ICE has structured its clearinghouse as a limited purpose bank so it will be regulated primarily by the Fed. Many large banks, meanwhile, have also lined up in support of ICE's plan.

Peterson said he isn't surprised that most banks are "clamoring" for the Fed to regulate credit-default swaps, given their "cozy relationship with Fed members."

"They probably think it is a good idea to have a regulator with the resources to bail them out when things go south," Peterson said.

He also expressed strong doubt about the Securities and Exchange Commission's ability to regulate credit-default swaps.

"How much confidence can we have in an agency that repeatedly ignored calls, even from within its own agency, to examine the investment advisory business of Bernard Madoff?" he said. Madoff has been charged with securities fraud after he allegedly told his sons that he had been running a Ponzi scheme.

Peterson's bill gives the CFTC primary authority over credit derivatives and other swaps, although it would still acknowledge that the Fed and SEC have some powers to regulate the instruments as well.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com

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