JPMorgan, Goldman, BofA get two-year delay in swaps pushout rule

Decision came from Office of the Comptroller of the Currency

Calendar Calendar

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. won a delay of Dodd-Frank Act requirements that they wall off some derivatives trades from bank units backed by federal deposit insurance.

Commercial banks including the Wall Street firms may get as long as an additional two years -- until July 2015 -- to comply with the rules, the Office of the Comptroller of the Currency said in a notice today. The push-out provision was included in Dodd-Frank, the 2010 financial-regulation law, as a way to limit taxpayer support for risky derivatives trades.

The Commodity Futures Trading Commission and other regulators need to complete swap rules to allow “federal depository institutions to make well-informed determinations concerning business restructurings that may be necessary,” the OCC said in the notice. Dodd-Frank requires that equity, some commodity and non-cleared credit derivatives be moved into separate affiliates without federal assistance.

In February, the U.S. House Financial Services Committee approved with bipartisan support legislation that would let banks keep commodity and equity derivatives in federally insured units by removing part of the push-out rule. Regulators including Federal Reserve Chairman Ben S. Bernanke had opposed the provision when it was included in Dodd-Frank, saying it would drive derivatives to less-regulated entities.

The OCC is prepared to “consider favorably” requests for transition, the regulator said in the six-page notice. The agency said delays could be extended for a third year based on consultations with other regulators.

OCC Report

JPMorgan had 99 percent of its $72 trillion in notional swaps trades in its commercial bank in the third quarter of 2012, according to the OCC’s quarterly derivatives report. Bank of America had 68 percent of its $64 trillion in its commercial bank, according to the report.

Banks including Citigroup Inc. will be given as long as two years beyond the July 16 deadline to move their swaps businesses, the OCC said. They must submit written requests describing how a transition period would reduce harmful effects on mortgage lending, job creation and capital formation. The requests, which must be submitted by Jan. 31, also must weigh how the transition period would affect insured depositors.

“The procrastination of both regulators and the banks on this portion of Dodd-Frank has been pretty amazing,” Marcus Stanley, policy director for Americans for Financial Reform, a coalition including the AFL-CIO labor federation, said in a telephone interview. “The swaps-pushout provision is a really important part and something that absolutely should be a central part of the regulatory framework.”

Bloomberg News

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