News Release: CFTC Rule Dismantles Key Guardrail for Derivatives Market


July 23, 2020

Carter Dougherty
(202) 251-6700

CFTC Rule Dismantles Key Guardrail for Derivatives Market

Cross-border derivatives regulation is the latest area in which Trump appointees are systematically dismantling the post-2008 framework for regulation of Wall Street and the global “too big to fail” banks. Today, the Commodity Futures Trading Commission drastically weakened their rules governing the massive global markets for financial derivatives.

“This rollback effectively gives the small number of giant international banks that dominate U.S. derivatives markets a road map to evade regulations passed in response to the 2008 financial crisis by simply routing their transactions through nominally foreign subsidiaries,” said Marcus Stanley, policy director at Americans for Financial Reform. “Derivatives are a fully globalized market in which there is not a meaningful distinction between risks taken by foreign subsidiaries and risks taken by the U.S. parent company and backed by the U.S. government safety net. “

As Commissioner Berkovitz stated in his dissent to this rule:

“The structure of the Final Rule practically invites multinational U.S. banks and hedge funds to book their swaps in offshore affiliates to avoid our swap dealer regulations. This will permit risks to flow back into the United States with none of the intended regulatory protections.”

The Trump Administration has gutted critical elements of financial protections such as  the Volcker Rule, severely weakened bank capital protections, and now has dramatically undermined risk controls in the multi-hundred trillion dollar derivatives markets. These are all steps that permit banks to profit from irresponsible risks while knowing that the public will, if necessary, bail them out. The pace of deregulation has only accelerated as the election draws closer, even in the face of the COVID-19 pandemic and a deep recession.