U.S. banks might act worried about how JPMorgan Chase's trading pratfall will lead to tighter regulations on their own risky bets, but they've already mapped out an escape route.
Banks for months have been vigorously working to get Congress to carve out a regulatory loophole that would let them keep trading derivatives in London and other overseas markets without any oversight. Meaning more episodes like JPMorgan's London Whale Fail forever.
A bill seeking these exemptions, H.R. 3238, known as the "Swap Jurisdiction Certainty Act," is working its way through Congress and is due for a vote in the House Committee on Agriculture on Thursday. It's one of seven bills in total seeking to water down various parts of the Dodd-Frank financial reform act, notes the advocacy group Public Citizen.
Several aspects of the Dodd-Frank reform bill, which has not yet been put in place, could have prevented JPMorgan's loss, which was the result of big bets on credit derivatives gone horribly wrong. But this loophole might enable banks to get around even those reforms.
As Public Citizen notes, the financial industry's lobbying against derivatives regulation is part of an effort that has been ongoing since the late 1990s, when they convinced the Clinton administration to overlook the concerns of the former Commodity Futures Trading Commission chief Brooksley Born about the dangers of unregulated derivatives.
Born told The Huffington Post's David Levine on Monday that JPMorgan's loss was eerily reminiscent of the Long Term Capital Management collapse in 1998. That scary episode, which required a government bailout, wasn't enough to get regulators to put controls on derivatives.