How the Euromess could roll back Dodd-Frank

Given the mess that Europe’s in right now, no one wants to disrupt the continent’s banking system. That’s probably part of the reason U.S. officials are thinking about giving foreign banks — and the foreign branches of U.S. lenders — a free pass when it comes to the new derivatives regulations that are coming down the pipe.
(Michael Probst - AP)

Under Dodd-Frank, U.S. derivatives dealers who trade with foreign customers or foreign branches of U.S. firms will soon be subject to a host of new rules — forcing them to raise their cash reserves, clear certain transactions on a central desk, and so forth. Now the Commodity Futures Trading Commission is thinking of issuing foreign banks and subsidiaries a temporary reprieve from the new rules, the Financial Times reports — a development that could open the door for a more permanent exemption.

European banks had already been protesting the new U.S. regulations: The E.U.’s financial services commissioner warned Securities and Exchange Commission Chairman Mary Schapiro that their implementation could create “confusion and legal uncertainty,” particularly as Europe is still in the process of hammering out its own regulations, as the Financial Times notes. At the same time, Republican legislators in the United States have been trying to roll back these regulations as well, arguing that they would drive the derivatives market away from American firms.

As a result, U.S. bank regulators have been under mounting pressure, both at home and abroad, to ease up on the new rules. To be sure, foreign firms and overseas subsidiaries could still be subject to stricter oversight: The CFTC is thinking of granting exemptions only if there are similarly stringent regulations overseas, for example, and some officials stress that they just want to give foreign banks and affiliates more time to comply with the same rules. But the fear of holding back markets in Europe at a time of distress could also persuade U.S. regulators to tread more cautiously.