Banks Get a $40 Billion Break From the Fed

Mish

US regulators including the Fed loosened rules on banks once again.

Hooray, More Free Money

Bloomberg reports Banks Get Easier Volcker Rule and $40 Billion Break on Swaps.

The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. approved changes to the Volcker Rule Thursday that let banks increase their dealings with certain funds by providing more clarity on what’s allowed. The regulators also scrapped a requirement that lenders hold margin when trading derivatives with their affiliates.

Thursday’s separate reversal of the interaffiliate margin requirement for swaps trades could free up an estimated $40 billion for Wall Street banks, though regulators added a new threshold that limits the scale of margin that can be forgiven.

The FDIC’s Gruenberg opposed the change to swaps rules, arguing that it removes a critical protection for banks. Fed Governor Lael Brainard reiterated that concern, saying in a statement that she dissented from the Fed’s approval because she fears the deregulatory move “could again leave banks exposed to the buildup of risky derivatives.

Hooray! 

What can possibly go wrong with fewer restrictions and less margin required on derivatives?

Mish

Comments (18)
No. 1-15
Mr. Purple
Mr. Purple

Tokidoki ... Dow 1,000,000?

ToInfinityandBeyond
ToInfinityandBeyond

This will end very badly. May take longer than anyone thinks but when it does blow it will be a doozy.

Quark711
Quark711

We’ve been told over and over, “no one can time the market!” This latest idiocy, combined with 1. several years of increasing “us versus them” social conflict that’s accelerating; 2. a pandemic; 3. near record setting call buying, and; 4. general complacency that cash is trash, makes this look like a good time to stand aside.

I think another leg down equal to or greater than the last one is coming, and soon. I don’t mind a low return from T-bills (for now). My new goal is safety and capital preservation.

Sechel
Sechel

What we learned after AIG is that banks cannot hedge the risk. The more CDS gets written the more risk there is. It can't be hedged. Lehman had counter-party risk with Goldman who had counter-party risk with JP Morgan who had it with AIG and Bear and back to Lehman. We wound up with so much systemic counter-party risk that it could not be managed to seen on the books of a single dealer. And the Fed never had the gumption to warn or deal with it, maybe the one entity that might have seen it. The regulators the Fed had at the banks were all effectively captured regulators. What makes it worse is these things are very profitable to write and trade and the models the banks use to never really looked at the tail risk and based everything on the last few years of volatility. Even today banks still use VAR.

Great book to read is Mandelbrot's Misbehavior of Marks

If you're thinking stock market here you're not even in the right paradigm. We're talking the credit markets which is way bigger and more vital.

Sechel
Sechel

Since the Fed and Congress will never serve as good regulators we need to introduce more market discipline. I propose bringing back double shareholder liability for banks and FDIC insurance can only be for true banks that limit their activities to plain vanilla banking. More than ever we need the volker rule. We've seen that banks will lobby to have as much candy as they can imagine , just like little children and we can be sure they'll eat it all until they puke all over each other. That's just the nature of finance. We'll always get back to that Minsky moment.

Nickelodeon
Nickelodeon

Just in time for the rapidly expanding money supply! Yippee!

AbeFroman
AbeFroman

I see this stuff and keep saying “It was only 10 years ago!! Are we this stupid? Yes, yes we are.”

anoop
anoop

11 years have gone by and people are still betting against the fed. when will y'alls learn? DNFTF

libertea
libertea

Global dollar shortage means US can print without inflation at expense of exports. But when foreign demand for dollars drops for any reason, Fed will be against the wall with interest rates at zero. We’ll see massive inflation as those dollars flow back in. Only reason treasuries even have yield right now is foreign demand for dollars. Fed can control nominal yield curve but they can’t control inflation.

Tengen
Tengen

I still miss those Community Chest cards from 2009 that read "bank error in your favor, collect $700B". The Monopoly man looking astounded at his good fortune was always good for a laugh!

Maximus_Minimus
Maximus_Minimus

FED worst than Covid-19. See the experiment with monkeys for laughs. I think the elite overproduction theory in it is a complete bollocks: the well is so poisoned and skewed that no capable, intelligent being want to get involved. Explains the choices you've got.

Casual_Observer
Casual_Observer

Is there anyone that doesnt believe we have a defacto nationalized banking system ?

ColoradoAccountant
ColoradoAccountant

It might be a good idea to separate banking functions from trading. Let's call it Glass-Steagall.

Tony Bennett
Tony Bennett

"free up an estimated $40 billion for Wall Street banks,"

...

We all know how this will turn out.

The up to $40 billion will be returned to shareholders in some fashion lickety split. There will be no clawbacks when empty pocketed banks turn to Uncle Sam for mega bailout.

Ain't Amerika Grand! Profits privatized Losses socialized ... just the way the elites want it.

Scooot
Scooot

I am wondering whether this was approved just so the banks can make more money, or is there a bigger problem building behind the scenes that might have come to light if it wasn’t approved?


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