May 21 (Bloomberg) -- Derivatives losses of at least $2 billion at JPMorgan Chase & Co. show the need for extending Dodd-Frank Act swap regulations to overseas trades, said Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission.
“We’ve had another stark reminder of how trades overseas can quickly reverberate with losses coming back to the United States,” Gensler said in a speech prepared for a Financial Industry Regulatory Authority conference today in Washington. “The bank here in the U.S. is absorbing these losses” on trades conducted at JPMorgan in London, he said.
JPMorgan, Goldman Sachs Group Inc. and other U.S. banks have said Dodd-Frank rules designed to bolster oversight of the derivatives market will hurt their ability to compete with foreign-based rivals if the rules are applied to overseas offices.
The CFTC will soon propose guidelines for when Dodd-Frank rules apply to overseas transactions and swap dealers, Gensler said.
“In the midst of a default or a crisis, there is no satisfactory way to really separate the risk of a bank and its branches,” Gensler said in the speech. “Likewise, I believe this must include transactions with overseas affiliates that are guaranteed by a U.S. entity, as well as the overseas affiliates operating as conduits for a U.S. entity’s swap activity.”
Under the guidelines, Dodd-Frank clearing and collateral rules may not apply to trades between overseas affiliates of U.S. firms and foreign-based companies that don’t have a guarantee from another U.S. company, Gensler said.
“We’ve seen time and again that U.S. overseas branches, overseas affiliates guaranteed by a U.S. entity, and overseas affiliates acting as conduits for U.S. entities bring risk crashing back onto U.S. shores,” Gensler said.