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Home Publications Blogs Beat the Press Doing Business Under One Roof and Breaking Off Derivative Trading

Doing Business Under One Roof and Breaking Off Derivative Trading

Wednesday, 26 May 2010 04:48

The Washington Post wrongly implied that a provision in the Senate bill that prohibits banks from brokering derivatives will prevent them from offering trades in derivatives to clients. The Post article contrasted this restriction with "one-stop-shopping" offered by European banks.

Actually, this provision would only prevent the bank itself from brokering derivatives which would mean that this trade would not be provided with the protection of the FDIC and the Fed that are intended to apply only to insured deposits. Under this provision, there is nothing that would prevent bank holding companies from establishing derivative trading divisions, which would have to be independently capitalized, or from contracting with independent brokers to offer services to their clients.

In both cases, the banks would be able to offer the same one-stop-shopping provided by their European counterparts. Therefore, one-stop-shopping is clearly not an issue in the debate over this provision.

Comments (5)Add Comment
written by izzatzo, May 26, 2010 7:52
Now look here, if nanny statists are going to use government regulation to lay out the proper way to do one-stop-shopping, at least consult an expert on economic freedom like John Stossel or Rand Paul.

Just exactly what do you think those people were doing at the Woolworth lunch counters in the early '60s? They were using the government to force freedom loving proprietors to sell them sandwiches, soda pop and derivatives under one-stop shopping weren't they?

You statist socialists get it backwards every time. Capitalism is about the sellers, not the buyers. Anyone who wants to offer one-stop shopping should be free to do so or not, depending on who walks in the door, and now you mushy minded socialists can't even decide which way to regulate, turning it all upside down, telling the same sellers they can't offer one-stop shopping.

Stupid liberals.
written by AbqMike, May 26, 2010 10:31
OMG! Again, I made the mistake of looking at the comments on Dean's posts when there's only one comment. As I should have expected, the comment was by Izzatzo, so I realized I had wasted a few seconds. This person, in an apparent delusion, seems to think it's the Dean Baker/Izzatzo blog, and that folks eagerly await HIS comments as much as Dean's. I NEVER look at his comments anymore ... such a waste of my time.
written by anon, May 26, 2010 11:42
Keep it up Izzatzo. I, for one, enjoy your juggling and tumbling with its mixture of wit, irony and allusion. Every King needs a court jester.
written by Bill Ferensen, May 26, 2010 4:29
Why do the derivatives desks need to be split off from the bank if derivatives are going to be moved onto a clearinghouse or exchange model? That alleviates the risk that the government will have to make good on a failed dealer's obligations.

If this provision passes, it will just push derivatives business to the European banks. After Lehman, buy side clients are very aware of counterparty risk and would much rather face giant banks with implicit or explicit government guarantees instead of a thinly capitalized spinoff of Goldman or Citi. All that would accomplish is to help London at the expense of Wall St.
European banks don't want the derivatives....
written by diesel, May 26, 2010 4:44
European banks don't want the derivative market--at least not in any form in which it currently exists. Read the piece in today's Der Spiegel on their view toward derivative reform. And if the English want it, let them have it, and good riddance.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.