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Wall Street Banks Are Dangerously Evading U.S. Derivatives Rules by Making Trades at Foreign Subsidiaries

Courtesy of Pam Martens

Fraction of Consolidated Interest Rate Swaps Operated Abroad

By Pam Martens and Russ Martens

Logos of Wall Street BanksOn May 30, with little mainstream media attention, four European academics published a report on how some of the largest Wall Street banks (all of whom received massive amounts of secret Federal Reserve bailout money during the 2007 to 2010 financial crash) were shamelessly gaming the system again.

Rather than complying with the derivatives regulations imposed under the Dodd-Frank financial reform legislation of 2010, the Wall Street mega banks had simply moved much of their interest rate derivatives trading to their foreign subsidiaries that fall outside of U.S. regulatory reach. This is known as regulatory arbitrage: seeking the most lightly regulated jurisdiction to ply your dangerous trading activity. (Think JPMorgan’s London Whale fiasco.)

The European academics are Pauline Gandré, Mike Mariathasan, Ouarda Merrouche and Steven Ongena. The paper is titled: “Regulatory Arbitrage and the G20’s Global Derivatives Market Reform.”

The researchers discovered that “US banks reduced their [derivative] holdings at home, while increasing them in Australia, Japan, the UK, Brazil, China, Hong Kong, and Mexico.”


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