U.S. swaps pushout rule to kick in July 2013
WASHINGTON |
(Reuters) - Banking regulators said on Friday that the controversial rule requiring banks to spin off some of their swap trading into affiliates will not take effect until July 16, 2013.
The rule was mandated by the 2010 Dodd-Frank Wall Street reform law and seeks to create distance between the part of a bank that receives government backstops such as deposit insurance and the part that engages in more risky activity.
The so-called Lincoln provision was tucked into the law by then-Senator Blanche Lincoln and was widely opposed by the financial industry and even some fellow Democrats.
It "pushes out" what is seen as some of the riskiest swap trading, including uncleared credit-default swaps and energy and metal swaps, among others.
It provides exemptions for U.S. banks from spinning off certain traditional bank derivatives activities, such as hedging and trades in interest-rate swaps.
U.S. banks have blasted the measure, arguing it will simply shift risk across the financial system and limit the ability of banks to hedge risk by forcing them to conduct derivatives trades through multiple affiliates.
Foreign banks that enjoy access to the Fed's discount window would not be eligible for the exemptions and have also criticized the rule.
The rule was slated to go into effect in 2013.
The Federal Reserve, Federal Deposit Insurance Corporation and the Comptroller of the Currency issued the guidance to clarify confusing language in the law that led some market participants to fear the provision would kick in this year.
CONGRESSIONAL FIX?
A bill to change the scope of the rule passed the House financial Services Committee last month with bipartisan support.
The bill would broaden the spinoff exemption to include even more types of swaps trading that could stay in-house. It would also put U.S. and foreign banks on equal footing by permitting the U.S. operations of foreign institutions to keep the same derivatives inside the bank as allowed in U.S. institutions.
Despite its broad bipartisan support, the measure has an uncertain future in the Democratically controlled Senate.
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