Foreign Banks Get Two-Year Reprieve From Failed Populist Effort

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Once upon a time, Blanche Lincoln was a United States Senator from Arkansas, which is no longer as friendly to Democrats as it was when she was first elected in 1998. So, facing a tough re-election battle in 2010, she pushed hard for a seemingly ill-advised rule forcing banks to hive off some of their swaps trading, believing that it would put her over the top.

It didn't, and she got trounced. Now, Blanche Lincoln is no longer a U.S. Senator, but her swaps push-out rule survives as part of the Dodd-Frank law, much to everyone's unhappiness. So everyone's getting together to agree to put off actually enforcing it for a while.

Foreign banks will be eligible for a two-year delay before complying with a controversial rule that forces banks to put some derivatives-trading operations into separate affiliates, the Federal Reserve said Wednesday.

The Fed said U.S. branches of foreign banks would be able to apply for a 24-month transition period before complying with the "swaps push-out" rule required by the 2010 Dodd-Frank financial-overhaul law….

The Fed's move mirrors that of other regulators. The Office of the Comptroller of the Currency, which oversees national banks, in January provided guidance to U.S. banks saying it was "prepared to consider favorably" requests for a transition period….

Regulators still have reservations about the measure. Mr. Bernanke, testifying before a House panel earlier this year, questioned its efficacy.

"It's not evident why that makes the company as a whole safer. And what we do see is that it will likely increase costs of people who use the derivatives and make it more difficult for the bank to compete with foreign competitors," he said.

Foreign Banks Allowed Delay of Rule [WSJ]
Fed Grants Foreign Banks Leeway in Dodd-Frank Swap Pushout Rule [Bloomberg]

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