LARGE non-financial US companies will be required to post collateral for derivatives transactions if they exceed a predetermined limit for credit exposure, according to proposals issued by regulators yesterday.
The Federal Deposit Insurance Corp (FDIC), which along with the Federal Reserve and other regulators, has produced the rules as part of the Dodd-Frank reform Act, said the new rules won’t hurt companies providing that they don’t engage in overly speculative bids.
“We do not want to blow up the healthy and needed parts of the market,” said FDIC chairman Sheila Bair.
But companies, which have fiercely fought against the swaps market reform – financial contracts between two parties to exchange one asset or liability for another at a future point in time – said applying margin requirements to corporate users, who require them to hedge against currency or fuel price fluctuations, was counter to the purpose of Frank-Dodd.
The Coalition for Derivatives End-Users, an umbrella group of business interests, warned that the proposals could “divert working capital from productive uses at the costs of economic growth and jobs, or send a vibrant, secure swaps market overseas.”
JP Morgan chief Jamie Dimon warned US firms would take business overseas to avoid draconian rules