Lifeline given to US banks

Steve Dinneen
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A KEY US lawmaker said yesterday there is no need to force banks out of the lucrative over-the-counter derivatives business.

Barney Frank, the Democratic congressman who will chair the House-Senate panel that will craft the final bill, said he disagreed with language in the Senate’s bill that could force banks to spin off their derivatives trading desks.

If the senator gets his way it would represent a major victory for banks, which are desperate to maintain the lucrative revenue stream.

New rules for the $615 trillion (£429 trillion) over-the-counter derivatives business are one of the most contentious parts of the broad regulation bill. One veteran banking analyst has said the legislation, including new derivatives rules, could lower the banking industry’s earning capacity by about 25 per cent.

The Senate bill aims to curb banks’ risky activities by forcing them to choose between their derivatives business and access to the Federal Reserve’s emergency funds and other federal protections.

Those provisions were proposed by Senator Blanche Lincoln, who said it would ensure that banks get back to the business of banking.

OTC derivatives are currently traded in private, mostly among a handful of Wall Street firms, including Goldman Sachs, JPMorgan Chase, Bank of America, Morgan Stanley and Wells Fargo.

Lincoln, a Democrat who is fighting a tough reelection campaign in Arkansas, has stuck by her tough-on-Wall-Street proposal despite opposition from the Federal Deposit Insurance Corp and the US Federal Reserve.