Banks ‘Dodged a Bullet’ as U.S. Congress Dilutes Trading Rules

[kirby]

Source: http://www.businessweek.com/news/2010-06-25/banks-dodged-a-bullet-as-u-s-congress-dilutes-trading-rules.html

The final agreement provides a number of exemptions: Banks can continue trading derivatives used to hedge their risks and can keep trading interest-rate and foreign-exchange derivatives. Banks will have up to two years to move other types of derivatives, such as credit default swaps that aren’t standard enough to be cleared through a central counterparty, into a separately capitalized subsidiary.

97% of Market

U.S. commercial banks held derivatives with a notional value of $212.8 trillion in the fourth quarter, of which 92 percent were interest-rate or foreign-exchange derivatives, according to the Office of the Comptroller of the Currency. The five U.S. banks with the biggest holdings of derivatives -- JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo -- hold $206.2 trillion, or 97 percent, of that total, the OCC said.

(So in other words, 92% of what is currently done is exempt by this bill - it changes very little)

[DefenseLawyer]

1. "Dodged a bullet". Yeah right.

Knowing that Congress was going to talk up big reforms before doing nothing must have really had them shaking in their wingtips.

[ProSense]

2. “Given where we were when this got started..."

The financial industry got their asses handed to them and have to pay for implementing the clean up.

Regardless of what anyone expected, this bill remains Glass-Steagall 2.0.

In particular, the congressional bills would require systemically risky financial institutions to (1) pay a fee into a resolution fund for failed institutions, (2) hold less leverage and have greater liquidity, (3) restrict their risk-taking activities (the so-called "Volcker rule," made explicit in the Senate version) and (4) be subject to a resolution process if they fail, one that would resemble the FDIC's current, successful approach for taking over failed banks.

If all these requirements sound familiar, they should - because they roughly mirror the successful protections put in place for deposit insurance in the 1930s. It's a model that worked for generations.

link

The world has changed and reform needs to keep pace with change.

It's a BFD.

[kirby]

3. Not sure it is a BFD...

There are some protections in there so that WHEN the next failure occurs the taxpayer will not have to pay as much to wind down the institutions, but the protections do not go very far to LIMIT the activity that will cause the next failure. The Volcker rule is positive.

Time will tell...

[HughMoran]

4. Apparently the bill has more in it that the Administration asked for

...including tougher derivative trading rules.

[Octafish]

5. Looks good on tee vee.

Nice sound bites, too, just in time for Fall.

[Greyhound]

6. K&R for more of that "change".