Largest US banks move derivative trading offshore to avoid regulation

[think]

This is a very in depth read about how the largest US banks choose to avoid the regulations imposed by Dodd-Frank by using loopholes to take their derivative trading offshore.

4 paragraphs does not even begin to tell the tale and it would be best to read the article in it's entirety to understand the complexity of these activities.

RPT-SPECIAL REPORT-U.S. banks moved billions in trades beyond CFTC's reach

(Repeats story first published on Friday to additional subscribers)

By Charles Levinson

Aug 21 (Reuters) - This spring, traders and analysts working deep in the global swaps markets began picking up peculiar readings: Hundreds of billions of dollars of trades by U.S. banks had seemingly vanished.

"We saw strange things in the data," said Chris Barnes, a former swaps trader now with ClarusFT, a London-based data firm.

The vanishing of the trades was little noted outside a circle of specialists. But the implications were big.

The missing transactions reflected an effort by some of the largest U.S. banks - including Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, and Morgan Stanley - to get around new regulations on derivatives enacted in the wake of the financial crisis, say current and former financial regulators...

~Snip~

Still, the banks' victory on the swaps loophole leaves a concentrated knot of risk at the heart of the financial system. The U.S. derivatives market has shrunk but remains large, with outstanding contracts worth $220 trillion at face value. And the top five top banks account for 92 percent of that...

Full article:
http://www.reuters.com/article/2015/08/24/usa-banks-swaps-idUSL4N10Y0D120150824

[bemildred]

1. The U.S. derivatives market has shrunk..., with outstanding contracts worth $220 trillion ... nt

[think]

2. Yes. Only $220 trillion currently. And the top 5 banks own 92% of those derivatives.

There were only $88 trillion in 1999 which then mushroomed to $672 trillion in 2008 during a time where deregulation of these activities occurred...

Gary Gensler, a former Goldman Sachs partner, helped deregulate derivatives in 2000. In 2009 as head of the CFTC under the Obama administration Gensler made sure this current loophole was put in place in the Dodd-Frank legislation:

From the article:

In 2009, President Barack Obama tapped Gary Gensler, then 51 years old, to chair the CFTC. Liberals grumbled about Gensler's résumé. The son of a cigarette and pinball-machine salesman in working class Baltimore, Gensler, at 30, had become the youngest banker ever to make partner at Goldman Sachs.

Among other jobs, he oversaw the bank's derivatives trading in Asia. Later, as an undersecretary of the Treasury, Gensler helped push through the 2000 law that had banned regulation of derivatives markets.

~Snip~

Gensler and his staff tucked a 17-word insert into a 228-page amendment to the Dodd-Frank bill. The addition seemed to assure banks that the new derivatives rules wouldn't apply to their overseas trading operations. Bachus backed off. But the insert was craftily worded to leave wiggle room. If those activities "have a direct and significant connection with activities in, or effect on, commerce of the United States," then the rules would apply, Gensler's addition read.

http://www.reuters.com/article/2015/08/24/usa-banks-swaps-idUSL4N10Y0D120150824