Yesterday, Sen, Richard Shelby (R-AL) introduced new legislation to gum up implementation of the Dodd-Frank financial reform law, in the latest Republican effort to prevent bank regulations from going into effect. A bipartisan group of lawmakers today decided to get into the act, introducing a bill that would weaken rules meant to prevent banks from engaging in risky trading of derivatives with federally backed dollars:
U.S. House and Senate lawmakers introduced legislation that would allow more swaps trading to be conducted at banks that have federal insurance by repealing part of the Dodd-Frank Act.
The bipartisan measures call for altering the 2010 law’s requirement that banks with access to deposit insurance and the Federal Reserve’s discount window move some derivatives trades to separate affiliates that have their own capital.
Banks have already received a reprieve from these rules courtesy of regulators who have delayed its implementation, giving these lawmakers time to water it down. But as Marcus Stanley, policy director for Americans for Financial Reform, said, “the swaps-pushout provision is a really important part and something that absolutely should be a central part of the regulatory framework.” Economists Jane D’Arista and Gerald Epstein added, “the intent is to remove risky activities from the core banking functions that are essential to the economy and to ensure that those risky activities will not trigger the need for a bail out to prevent systemic collapse in the future as they did in the 2008 crisis.”
As financial expert Jennifer Taub noted, “Swaps have been at the heart of major financial crises since the bankruptcy of Orange County. The Long-Term Capital Management meltdown, the failure of AIG and the Greek debt crisis, share this common component.” Banks are already looking for creative ways to circumvent Dodd-Frank’s various limitations on risky trading (even as Wall Street profits skyrocket back to their pre-financial crisis highs). In this environment, the last thing that the financial system really needs is lawmakers aiding and abetting the ability of banks to gamble with taxpayer funds.