Chillin' out till it needs to be funded
Long winded one year negotiations, and a handful of committees later, the modified regulations seem set to be put into law. Thru a marathon 21 hour session yesterday, Lincoln’s draconian provision banning banks from any derivatives trading was one of the final pieces that was signed into a compromise yesterday. The proposal was watered down byut still forces institutions to move commodities and equities’ derivatives desk to a separate business within the holding company structure [they will have to separately establish risk capital for the same.
Though the bill still leaves in the promised Consumer Protection and financial Regulation Agency, it also lets loose the confederation of different regulatory agencies to go about their business with only a weak inter agency council on top to coordinate the showdown next time. The cost of the bill is likely to be $19bn for the banks according to the lawmakers’ estimates.
Dozens of House of Representatives Democrats said Lincoln’s proposal would force trading to move overseas, and threatened to vote against the bill if it included the provision.
The compromise allows banks to stay involved in foreign-exchange and interest-rate swaps dealing, which account for the bulk of the $615 trillion over-the-counter derivatives market.
They also could participate in gold and silver swaps and derivatives designed to hedge banks’ own risk.
They would need to spin off dealing operations that handle agricultural, energy and metal swaps, equity swaps, and uncleared credit default swaps.
It requires “too-big-to-fail” banks to install new capital and leverage limits, instructs the government to conduct unprecedented on-going audits of the Federal Reserve’s lending programs, as well as a one-time audit of its emergency response programs.
Also included in the sweeping package, is a tough “Volcker rule” — named for former Fed chief Paul Volcker — that would limit insured banks’ speculative proprietary trading activities.
On the Volcker rule, banks can now own private equity and hedge fund companies to 3% of its equity
The final version of the Volcker rule would give regulators little wiggle room to waive the trading ban but would also allow banks to invest up to 3 percent of their tangible equity in hedge funds and private equity funds.
The reconciliation still needs to be passed by both houses before being signed into law.
Reuters commentary [almost everything is live blogging these days 😉