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January 04, 2013

Banks Win Delay On Derivatives Rule

Posted in: Uncategorized

In what is becoming a trend, the Wall Street banks have been able to once again dodge Dodd-Frank, at least for now.

From Bloomberg:

JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Bank of America Corp. won a delay of Dodd-Frank Act requirements that they wall off some derivatives trades from bank units backed by federal deposit insurance.

Commercial banks including the Wall Street firms may get as long as an additional two years — until July 2015 — to comply with the rules, the Office of the Comptroller of the Currency said in a notice yesterday. The provision was included in Dodd- Frank, the 2010 financial-regulation law, as a way to limit taxpayer support for risky derivatives trades…

JPMorgan had 99 percent of its $72 trillion in notional swaps trades in its commercial bank in the third quarter of 2012, according to the OCC’s quarterly derivatives report. Bank of America had 68 percent of its $64 trillion in its commercial bank, according to the report.

Two points here.

One, did you catch that “backed by federal deposit insurance” part? Yes, these trades are backed by you the taxpayer and your credit vis a vis the Federal Reserve. These banks will continue to make risky bets underwritten by you. If they lose you have to help pay and if they win… well that’s for them to decide isn’t it? It’s the free market (somehow).

Two, the reason the banks pushed for delaying the rule is not to ensure compliance with the rule. They pushed to delay the rule to 2015 in order to buy time to figure out how to get the rule repealed or further diluted. Enter the Financial Services Roundtable and the rest of the lobbyists.

Dodd-Frank was a weak bill to begin with but now it seems the strategy by Congress to punt the specifics to regulators is making the already weak bill defunct.

Photo by dvpfagan under Creative Commons license.


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