[Vision2020] Reckless Banking, Inadequate Rules

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

------------------------------
July 12, 2013
Reckless Banking, Inadequate Rules By THE EDITORIAL
BOARD<http://www.nytimes.com/interactive/opinion/editorialboard.html>

Gary Gensler, the reform-minded
chairman<http://www.cftc.gov/About/Commissioners/GaryGensler/index.htm>of
the Commodity Futures Trading Commission, got the
best deal he could on Friday, when the commission voted 3 to
1<http://dealbook.nytimes.com/2013/07/12/u-s-regulators-approve-stricter-trading-rules-abroad/?ref=garygensler>to
approve guidance on how new rules on derivatives will apply
internationally, as required under the Dodd-Frank financial reform law.
But, in the face of unified opposition to strong “cross-border” regulation
— from the big banks; their government allies in both the United States and
Europe; and a swing-vote Democrat on the commission, Mark Wetjen — the deal
falls short of what’s needed to protect American taxpayers and the global
economy from the calamitous effects of reckless bank trades.

Under the guidance, banks and hedge funds with a principal place of
business in the United States will have to adhere to the new Dodd-Frank
derivatives rules. That’s a positive development because it ensures that
entities run in, say, Greenwich, Conn., can’t dodge the rules by
incorporating in, say, the Cayman Islands.

But the real issue is how to regulate derivatives trading by the overseas
affiliates of American banks and by the foreign banks that do business with
them. Mr. Gensler had correctly argued that those trades should fall under
Dodd-Frank, unless foreign regulators adopted rules that were substantially
the same as those under American law. But instead of the rule-by-rule
similarity originally envisioned, the guidance allows for so-called
substituted compliance with a foreign country’s rules as long as those
rules are “comparable” and “comprehensive.” That’s a win for the banks for
which the whole point of substituted compliance is to conduct as much
business as possible in places where regulators and regulations are weaker.

There’s still a chance that the deal’s basic framework will be strengthened
over the next several months. The commission has until Dec. 21 to determine
whether rules in the European Union, Australia, Canada, Hong Kong, Japan
and Switzerland pass muster. If it determines that those rules are not
comparable — or if the rules elsewhere have not been completed — then
Dodd-Frank rules would take effect.

Theoretically, that could encourage other countries to mirror or exceed
American standards in creating their regulations. Or the commission could
deny substituted compliance in any country that is not up to the Dodd-Frank
standards. But that would require continued strong leadership at the
commission, and that is in question because Mr. Gensler is expected to
leave his position by the end of the year. The final chapter in derivatives
regulation has not been written, but Friday’s deal does not bode well.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://mailman.fsr.com/pipermail/vision2020/attachments/20130713/08e223a7/attachment.html>