On the Washington Post’s wonklblog, Mike Konczal poses this “pop quiz”: “What do the following financial crises — AIG, Lehman Brothers, Citigroup off-balance sheet SIVs, Bear Stearns, Long-Term Capital Management, and the “London Whale” of JP Morgan — all have in common?”

The answer: They involved U.S. financial institutions using overseas entities to make reckless derivatives trades and shield them from oversight.

“AIG Financial products was run out of London as a branch of a French-registered bank,” Konczal writes. “The U.S. Lehman Brothers Holdings guaranteed 130,000 outstanding swaps contracts from their London affiliate. Citigroup’s off-balance sheet financial instruments were launched from London and incorporated in the Cayman Islands. The two Bear Stearns hedge funds that collapsed, precipitating the firm’s failure and the taxpayer rescue, were incorporated in the Cayman Islands. Long Term Capital Management’s swaps were booked in a Cayman Islands affiliate” that was basically a P.O. box. And the London Whale trades were managed out of a London affiliate of JPMorgan Chase.

“Wall Street banks routinely transact more than half their derivatives through foreign subsidiaries,” Konczal quotes AFR’s Marcus Stanley as saying.

That combination of history and current practice make it a “natural part of financial reform… to make sure that the trades that go on with these foreign affiliates have to follow the same rules as firms in the United States,” Konczal writes.

“This is the issue [CFTC chairman Gary] Gensler is racing to address before the end of his term,” Konczal writes.