US to force banks to spin off swaps desks

Wall Street banks have moved a step closer to being forced to hive off their derivative operations after a leading US politician pulled out of an 11th-hour compromise which would have provided a stay of execution.

James Quinn, US Business Editor
Telegraph [UK]
19 May 2010

Senator Chris Dodd, the man responsible for pushing financial reform legislation through the US Senate, had been attempting to impose a two-year stay on the measure, to allow regulators to investigate the proposal and the impact it might have on major banks and the wider financial system.

But in a dramatic reversal, he on Wednesday said he would drop his alternative proposal, and not attempt to block the original measure, designed to shed light on the $450 trillion (£312 trillion) market.

He made the decision amid opposition not only from fellow politicians – keen to show Wall Street who is boss – but from banks themselves, concerned about the uncertainty the two-year stay of execution would lead to.

His decision is a victory for Senator Blanche Lincoln who initially spearheaded the move. Her proposals ensure that any bank who wishes to accept government funding must spin-off swaps and other derivative desks into a separately-funded unit.

Although the majority of major banks have long paid back funds received under the Treasury’s Troubled Assets Relief Programme (TARP), it will mean that banks which choose not to comply will not be able to access the Federal Reserve’s discount window.

The news will also be seen as a victory for Professor Elizabeth Warren, chairman of the Congressional Oversight Panel on the TARP, who has campaigned for stricter rules on derivatives…

The article continues at the Telegraph.

Comments are closed.