Policy makers in Europe and the U.S. still refuse to face the reality that unless the derivatives bubble is eliminated through Glass-Steagall measures, no financial system is possible.
The U.S. Securities and Exchange Commission (SEC) is not expected to vote on final rules restricting derivatives, `leveraged’ exchange-traded funds (ETFs), and the like before the next presidential administration, SEC member Michael Piwowar (the SEC’s sole Republican member) told a conference at Georgetown University, according to a report in Business Recorder today. Business Recorder called this a potential “fatal setback for two pillars in the SEC’s effort to boost oversight over asset managers and the funds they offer.”
As for Europe, an Oct. 23 Bloomberg story detailed the collusion between the European Commission, big banks, and the derivatives “industry” to cancel the “stable-funding rule” which the Basel Committee mandated for 2018. The Commission’s “sweeping plan” is to be released next month, “as part of a growing effort to soften the blow of regulations on struggling banks.” The EC’s Financial Services head, Valdis Dombrovskis, is explicit that the issue is “financial stability.”
The stable-funding rule “requires banks to have long-term funding for loans, securities, derivatives and repurchase agreements so they’re not vulnerable to sudden market meltdowns.” Vanessa Mock, an EC spokeswoman, told Bloomberg by e-mail that the regulations must “tak[e] into account European specificities.” That is, that the European banks are already bankrupt!
Last June, the International Swaps and Derivatives Association (ISDA), the Association for Financial Markets in Europe, and the Institute of International Finance sent a letter to the EC which had the audacity to claim that the rule “doesn’t properly take into account the collateral lenders receive from clients that is meant to reduce risks from the trades.”
“When experts from EU member states met in the summer, a majority was in favor of crafting an alternative to the derivatives restriction, according to minutes of the meeting seen by Bloomberg.”
Major panic is also expressed over the effect of the rule on the repo market, on which banks rely for short-term funding.