The Banking and Strategy Initiative

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The twisted regulation | A fellow bull

A controversial bill will make its way to the Senate floor today. According to Bloomberg, inside the 1,558-page bill is a two-page provision that would force 40 of the largest US investment banks to spin off their derivatives business.

The bill will prohibit swap dealers from taking federal assistance. This would include accessing the Federal Reserve discount window or deposit insurance from the Federal Deposit Insurance Corp. This would directly affect companies such as JPMorgan (JPM), Goldman Sachs (GS), Citigroup (C), and Bank of America (BAC), which would be forced to raise $250 billion in capital, cut executive pay, and divest their most lucrative assets.

While this bill seems very negative for the banks, Gillian Tett of the Financial Times believes it will take some time for the banks to work out what exactly has been turned into law. However, she says, “the complexity [of the bill] will end up playing into the hands of the banks.”

In the simplest of terms, this bill would allow these banks to fail whenever the next financial crisis starts.

Moreover Fed retains control of most major banks nd these are the ones splitting, so emergency cash was still on till y’day..Wonder what this failure will bring us (just that of the bill on the floor, a crisis would seem in the far distance)

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This entry was posted on April 30, 2010 by in Banking, Financial Markets, Financial Services, US and tagged , , , , , , , .

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