Barney Frank Deals a Death Blow to Derivatives Reform

Barney Frank just delivered a speech at Compliance Week’s annual conference in Washington D.C. and he seems to have confirmed what Goldman Sachs analysts told us yesterday - new legislation that forces banks to spin-off their derivatives business probably won't make it into the final financial reform bill.
Author:
Publish date:
Updated on

Barney Frank just delivered a speech at Compliance Week’s annual conference in Washington D.C. and he seems to have confirmed what Goldman Sachs analysts told us yesterday - new legislation that forces banks to spin-off their derivatives business probably won't make it into the final financial reform bill.

"Banks ought to be able to hedge their own risks," Mr. Frank said. He said banks would be prohibited from overly risky derivatives activities by the Volcker Rule and that the separate provision wouldn't be necessary.

"I don't see the need for a separate rule regarding derivatives because the restriction on banks engaging in proprietary activities would apply to derivatives as well as everything else," Mr. Frank said.

That’s not going to sit well with Barney’s Democratic colleague, Blanche Lincoln of Arkansas, who has been fighting tooth and nail for the new legislation. Goldman’s analysts warned yesterday that the legislation would do some serious damage to the banks if it passed, but they don’t think it will get through.

From Goldman's Report:

...while regulatory risk is (hopefully) reaching a peak it does create the specter of an overhang for some time. In particular our Washington analyst does not expect the Lincoln proposal to make it into the final version of the bill, but should this occur it would be very negative for investment banks and potentially exchanges as volumes would suffer.

Related

Blanche Lincoln's Derivatives Provision All But Dead Now

Blanche Lincoln’s famed derivatives legislation, which would basically prevent any big bank from ever trading CDS again, has already been chastised by Barney Frank. Now, a senior Treasury official has essentially delivered another blow to the Lincoln legislation.

Barney Frank Has Muzzled Carl Icahn

We know Carl Icahn is such a tough guy he’ll sue his friends and fellow billionaires to win deals. But, has the outspoken sultan of shareholder rights been silenced by Washington lawmakers?

Blanche Lincoln Ain't Backing Down from Derivatives Overhaul

Sen. Blanche Lincoln, Arkansas Democrat, was able to push her controversial derivatives amendment into the financial regulatory reform bill yesterday, despite threats from Wall Street. And any banker that thinks Blanche is going to back off derivatives reform after she wins the Arkansas primary runoff on June 8 has no clue how hard-nosed she really is.

Brickell Continues to Defend OTC Derivatives

Mark Brickell has worked for over a decade to keep government regulators out of the over-the-counter derivatives market. He hasn't given up yet. The former JPMorgan executive and who served as chairman of the International Swaps and Derivatives Assoc., is out today with a piece in the WSJ warning against the dangers of increasing government oversight of OTC derivatives. Swaps are benign and help big companies like McDonald's hedge its currency risk at a low cost, he argues.