The massive government bailout of
might not have been necessary if the giant insurer had been required to hold capital against its massive derivatives liabilities, according to a top U.S. derivatives regulator.
Testifying before a Congressional committee Thursday, Gary Gensler, chairman of the Commodity Futures Trading Commission, said he is seeking authority to impose new capital requirements on participants in unregulated derivatives markets. He looks likely to meet resistance from large banks such as
, who fear such requirements will hurt their profits.
Asked what this authority might accomplish in terms of preventing the type of financial meltdown that occurred last year, Gensler said one example is that AIG would have had to set capital aside against its book of credit default swaps, a type of derivative contract written extensively by AIG and which was instrumental in its failure.
Another witness at the hearing, Mark Lenczowski, an attorney at JPMorgan, said 92% of American companies use derivatives for purposes such as reducing risk and companies including
expressed concerns about the "unintended consequences" of capital rules.
"Traders are really good at making up supposed risks that they are supposedly hedging against," said another witness, UCLA law school professor Lynn Stout. However, Stout argued the derivatives market has become so massive, it is clearly being dominated by speculators.
David Dines, an executive at
, an agricultural conglomerate that is the largest private company in the U.S., said new rules should not treat all unregulated derivatives products identically, arguing that some did not contribute to the financial meltdown.