Banks Push Congress For Loophole That Would Allow More JPMorgan-Like Disasters

Banks are pushing for exemptions from Dodd-Frank that would let them keep trading derivatives without regulation in London and elsewhere.

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.
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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.

Will JPMorgan's trading loss, which is already being shrugged off by shareholders and regulators as no big deal, have any bigger impact?

Comments

[Neill Edwards]

09:32 PM on 05/15/2012

This article included a video clip which was shut down. We are told that it cannot be viewed from our current location. WHAT???? Puerto Rico is a part of the United States of America ! All Puerto Ricans born are automatically citizens of the USA. So why are we viewed by you as a foreign country ???
Yours disgustedly,
Neill Edwards.

[Jackieooh]

04:24 PM on 05/15/2012

We need bank regulations and we need them now. Close the loop holes. Every American should be demanding at least that from our elected officials.

[Swisher67]

04:21 PM on 05/15/2012

Ban lobbyists! They are corporate attack dogs, trying to bypass any and all regulations that threaten their profit margin. They are the scourge of our country.

[frank adam]

04:18 PM on 05/15/2012

During my travels in Europe, merchants always would accept dollars. Recently they want Euros not dollars. With the mess they are in, this speaks volumes.

[cavegal]

05:00 PM on 05/15/2012

Greece currently prefers dollars and the pound sterling.

[frank adam]

05:08 PM on 05/15/2012

Then all is well, how nice for them. What's your source.

[VPerry24]

03:29 PM on 05/15/2012

Now Obama claims we need more regulations, after he signed off on the reform bills that left the loopholes in tact. Hindsight because of election? Mrs. Warren and others stating we need more regulation and then this. Guess, who will win!

[eshepherd77]

03:15 PM on 05/15/2012

These guys should have been thrown out of office and ordered to make restitution to all the folks they swindled in the last melt down at the least and sent to prison at the worst. Obviously the same crooks are in power now just as they were then so it's no surprise they want to pursue more of the policies they got rich with before. We paid the price, not them!

[jaye4412]

02:57 PM on 05/15/2012

Is he sure he's in the right party??

[Tahut]

02:45 PM on 05/15/2012

So another fall of 2008 repeat is in the makings, eh?

[olitenup]

03:58 PM on 05/15/2012

There has been plenty of rumors about this for about a year and a half.

[Bklein153]

02:20 PM on 05/15/2012

Shouldn't we call Whale Fails beachings???