Banks Privately Chafe Against Derivatives Reform

Embrace change in public but quietly fight it

By Jason Farago,  Newser Staff

Posted May 29, 2009 7:22 AM CDT

(Newser) – The Obama administration is pushing to reform the market for financial derivatives by requiring new reporting to make trades more transparent. In public, Wall Street is saying it's in favor of the changes, but as the Wall Street Journal reports, the banks are pushing hard against reforms behind the scenes. For them, legislation that would make the market more transparent would cut into their enormous fees. They plan to release a letter to regulators laying out their objections in the next few days.

Trades in traditional securities like bonds are reported publicly, but information on derivatives like credit-default swaps are controlled by just a few big banks. They are able to exploit small gaps in pricing between buyer and seller that translate into billions in revenue—but greater transparency could narrow that gap to effectively zero. Despite the banks' reluctance, regulators are pushing hard; says one top official, "The days of conducting standardized derivative trades over the phone will soon be over."

Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Thursday, May 21, 2009, before a House Appropriations subcommittee.
Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Thursday, May 21, 2009, before a House Appropriations subcommittee.   (AP Photo/Susan Walsh)
An electronic board shows share index at a private stock market gallery in Kuala Lumpur, Malaysia, Thursday, Oct. 16, 2008.
An electronic board shows share index at a private stock market gallery in Kuala Lumpur, Malaysia, Thursday, Oct. 16, 2008.   (AP Photo/Lai Seng Sin)
Treasury Secretary Timothy Geithner arrives in the Rose Garden of the White House in Washington, Friday, May 22, 2009.
Treasury Secretary Timothy Geithner arrives in the Rose Garden of the White House in Washington, Friday, May 22, 2009.   (AP Photo/Haraz N. Ghanbari)
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