17,000 Call for No Offshore End-Run Around Derivatives Reform

FOR IMMEDIATE RELEASE: March 21, 2013
Contact: Jim Lardner, AFR – jim@ourfinancialsecurity.org, 202-466-1854

17,000 Call for No Offshore End-Run Around Derivatives Reform

Petitions Delivered Today to the Commodity Futures Trading Commission

Public Citizen and Americans for Financial Reform today delivered petitions signed by more than 17,000 people calling on the Commodity Futures Trading Commission (CFTC) to stand firm in applying derivative standards to all the dealings of U.S. banks and their overseas subsidiaries. The petitioners urged the commission to resist Wall Street pressure for exemptions and delays, and apply “the transparency and safety requirements of the Dodd-Frank Wall Street reform act to ALL derivatives transactions relevant to U.S. markets, regardless of whether these transactions are routed through a foreign subsidiary or entity.”

The same message was dramatically reinforced by the Senate’s new report on the “London Whale” fiasco, in which London-based traders for JPMorgan Chase used federally guaranteed funds to engage in wildly dangerous bets that cost the company at least $6 billion. The Whale trades reflect “Wall Street’s insatiable appetite for risky derivative bets,” as Senator Carl Levin (D-Mich.), chairman of the Senate Subcommittee on Investigations, puts it.

“The American people have already suffered one devastating economic assault rooted largely in Wall Street excess, and they cannot afford another,” Senator Levin declared at a Friday hearing on the matter. “When Wall Street plays with fire, American families get burned. The task of federal regulators, and of this Congress, is to take away the matches.”

And JPMorgan’s trades are only the latest demonstration of the potential of activities carried out “overseas” to rebound on the U.S. economy. Major U.S. banks already use foreign subsidiaries for more than half their derivatives business. The AIG bailout stemmed from the reckless bets of a unit run out of London, leaving U.S. taxpayers to cover that company’s obligations to European banks. The collapse of Bear Stearns and the bailout of Citibank were partly caused by transactions conducted, for legal purposes, in the Cayman Islands.

The CFTC has put out a set of draft rules that cover all derivatives activities with (in the language of Dodd-Frank) “direct and significant connection with activities in, or effect on, commerce in the U.S.” But Wall Street – with help from foreign banks and foreign regulators – is pushing to effectively limit the scope of U.S, enforcement to derivatives traders physically based inside our borders. This would be a giant loophole. For the biggest banks, evading oversight would become as simple as hitting a key or two on a computer screen.