John Deere, Caterpillar, seek Exemptions on Derivatives Rules

John Deere Financial, Caterpillar Financial Services, Ford Motor Credit and other financial divisions of manufacturing companies are urging regulators to exempt them from upcoming derivatives rules. The companies emphasize their differences from other lenders.

The financial arms of U.S. manufacturing companies, nervous about new derivatives rules that could curb their financial hedging activity, continue to press federal regulators attempting to decide which companies escape the regulations.

"I don't think anyone is really comfortable about where they stand or willing to do much planning around this until the final rules are published," said Clay Thompson, head of government affairs at Caterpillar Inc.

Caterpillar Financial Services Corp. is sending letters to regulators along with Boeing Capital Corp., a unit of Boeing Co., John Deere Financial, a unit of John Deere Ltd., and the Ford Motor Credit Co., a subsidiary of Ford Motor Co. The financial units are asking regulators to give them the same exemption that their parent companies will likely get, keeping them from being lumped in with regulations for financial companies.

“We're a little bit of a different animal from commercial banks and other finance companies and our risk profile is completely different,” Thompson said. “Our sole mission is to help facilitate the sale of our parent's product. In other words, keep our factories humming.”

These so-called captive finance companies perform banking functions, often by extending loans to customers, to facilitate the business of the parent companies.

The question of how these finance units will be treated is the latest in a long battle over whether commercial companies will be subject to new derivatives regulations.

Companies such as John Deere have long argued that they use swaps to hedge business risk and don't use enough of them to pose a risk to the financial system, so therefore they shouldn't be treated the same way as the financial institutions that are the focus of last summer's Dodd-Frank financial law.

– Courtesy of Wall Street Journal, Jamila Trindle