THE STASH DECEMBER 2, 2009
I wrote a piece last week about how, as recently as six weeks ago, Wall Street was punching big holes through Congress's efforts to regulate derivatives, the financial instruments at the center of last fall's crisis. But, over the last month or so, a variety of progressive groups, working with Commodity Futures Trading Commission Chairman Gary Gensler, the country's chief derivatives regulator, have fought to seal those holes. And it looks like they're about to succeed, at least in the House.
Throughout that effort, I'd heard second-hand that Treasury Secretary Tim Geithner was sympathetic to the more hawkish approach. But it was tough to tell because he'd largely stayed out of the fight. (In fairness, derivatives were only one piece of the regulatory picture, and Treasury and the administration were busy on several others--like new authority to wind down too-big-to-fail financial institutions.) But yesterday Geithner made his most explicit comments about derivatives regulation in months, and they were pretty encouraging. This Dow Jones story has the details:
Mr. Geithner testified about administration's plan to bring new regulations to the over-the-counter market. A key part of the plan would require many routine products to be traded on platforms and processed through clearinghouses, which guarantee trades.
But businesses have warned such a move could have a dramatic cost impact because it would force them to post cash margin to a clearinghouse. In response to those concerns, two key House panels carved out exemptions for commercial firms in their derivatives bills.
Mr. Geithner on Wednesday ... warned that any clearing exemptions should be narrowly defined so firms can't skirt the rules.
"I think there will be a good case for carefully crafted, limited exemptions," Mr. Geithner said in response to questioning. "We would like to work with you to design that, but to make sure those carefully designed exemptions don't end up gutting the rest of the bill."
The exemption mentioned in the piece is the so-called "end-user exemption," which big banks have been angling to use as a kind of shield from the looming regulations. (I explain this more in my piece.) Geithner was saying, in effect, not so fast--we're happy to exempt people who should legitimately be exempted, but we don't want to let big banks off the hook.
And it turns out that the timing of his comments is pretty important. While the House was already on its way to tightening the exemption, the Senate has just started weighing the issue. The big Wall Street firms were hoping to make a final stand in the Senate Agriculture Committee (which has partial jurisdiction over the issue for convoluted reasons), and Geithner's comments probably tilt the field against them a bit further.