Banks Face New Checks on Derivatives Trading
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Posted 06 January 2013 - 08:34 AM
January 3, 2013, 11:07 am
Banks Face New Checks on Derivatives Trading
By BEN PROTESS
After spending two years and millions of dollars to temper a regulatory crackdown, the world's biggest banks are now resigned to a wave of new oversight.
By New Year's Eve, 65 banks had registered their derivatives business with regulators and turned over heaps of real-time trading data to outside warehouses, fulfilling a central rule of the Obama administration's financial regulatory overhaul. Late on Wednesday, a warehouse also posted an early batch of data online, shining a rare spotlight on an opaque business that blew up in the 2008 financial crisis.
The changes, regulators say, signal a pivotal moment in the fight over Wall Street regulation. Until now, regulators had little authority and little information to scrutinize the minutiae of derivatives trading, a vast market that totals more than $600 trillion.
"They are an historic change for the markets that will benefit the public and the economy at large," Gary Gensler, chairman of the Commodity Futures Trading Commission, the architect behind the derivatives overhaul, said in a statement.
The banks required to register and produce data this week included overseas giants like Deutsche Bank in Germany and Barclays in England as well as some of the biggest names on Wall Street, among them Goldman Sachs, Citigroup, Morgan Stanley and JPMorgan Chase. The group signed up as so-called swap dealers, the designation for firms that arrange derivative contracts tied to the value of commodities, interest rates or mortgage securities.
The new oversight is a major component of the Dodd-Frank Act, the Wall Street regulatory overhaul passed after the financial crisis. The law took particular aim at derivatives, which proved pernicious in the crisis.
Banks had bought billions of dollars in derivatives as dubious insurance on mortgage-backed investments. When the investments soured, the American International Group lacked the capital to honor agreements with the banks, prompting a $180 billion government bailout of the giant insurance company.
Hoping to prevent such calamities, lawmakers spelled out a plan in Dodd-Frank to require derivatives dealers to register with Mr. Gensler's agency. Under the law, the banks and hedge funds must also open up their trading books to regulators and the broader public.
Posted 06 January 2013 - 04:24 PM
Banks given four more years to introduce minimum liquidity standards
Banks have won a significant concession from global regulators after being granted four more years to introduce measures that will make them less vulnerable to Northern Rock-style runs and financial shocks.
The Basel committee of banking supervisors has also relaxed proposals on the range of assets that banks must hold as a buffer against the threat of a collapse. Mervyn King, the governor of the Bank of England and chair of the committee's oversight body, said: "For the first time in regulatory history, we have a truly global minimum standard for bank liquidity."
The standards are intended to allow a bank to survive a 30-day crisis by requiring a minimum number of assets that can be sold quickly to raise cash, as an insurance against the mass withdrawal of deposits and funding freeze that crippled Northern Rock, or a systemic crisis of the kind triggered by the Lehman Brothers collapse.
The new rules will not be imposed in January 2015, as had been intended under an earlier draft, but will instead be phased in over four years by 2019. King indicated that the concessions would allow banks to use their reserves to help struggling economies grow, rather than have them tied up in meeting the new global banking guidelines, dubbed Basel III.
Posted 07 January 2013 - 12:54 PM
The way you think economic works is funny.
derivatives are used to increase the supply in relation to demand to stop the hyperinflation due to the massive amount of credit chasing after yields.
Imagine if all the trillions out there looking for a return from gold didn't get absorbed by a 1 to 100 ratio of gold to paper...The prices of everything would begin rising faster than you all could keep up with.
without derivatives...the economy would have hyperinflated and imploded decades ago.
all the 2008 was...was what happens when the maximum potential of the global growth during a business cycle was reached.
there is going to be another collapse...the economy will rally and collapse...rally and collapse.
it's been doing this for 6 decades...but it's reaching the end of the line...
All the elected officials don't have teh foggest clue how the delusion that are floating around in is sustained.
They think they are Lawmakers...lol.
they are at the complete and utter mercy of the system they think they control.
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