CLE Materials for Panel #1 - George Washington University Law ...

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4/1/2011 1:11 PM
1034 OREGON LAW REVIEW [Vol. 89, 951
with the result that “the largest banks’ [derivatives] operations are
largely left intact.” 363
The requirement that banks must clear their trades of CDS to be
exempt from the Lincoln Amendment is potentially significant, in
view of the new clearing requirements set forth in other provisions of
Dodd-Frank. 364 However, there is no clearing requirement for other
derivatives (e.g., interest and currency rate swaps) that reference
assets permissible for investment by national banks (“bank-eligible”
derivatives). Consequently, banks may continue to trade and deal in
OTC derivatives (except for CDS) without any interference from the
Lincoln Amendment, as long as those derivatives are bank-eligible. 365
As discussed above, all “proprietary trading” by banks in derivatives
must also comply with the Volcker Rule as implemented by
regulators. 366
2. Banks Controlled by Financial Holding Companies Should
Operate as “Narrow Banks” so That They Cannot Transfer Their
Federal Safety Net Subsidies to Their Nonbank Affiliates
A fundamental purpose of both the Volcker Rule and the Lincoln
Amendment is to prevent LCFIs from using the federal safety net
subsidies to support their speculative activities in the capital markets.
As enacted, however, both provisions have numerous gaps and
exemptions that undermine their stated purpose. 367 Given the greatly
weakened versions of both statutes, Paul Volcker was undoubtedly
363 Keoun & Kopecki, supra note 339 (quoting analyst Nancy Bush).
364 Title VII of Dodd-Frank establishes comprehensive clearing, reporting, and margin
requirements for a wide range of derivatives. See S. REP.NO. 111-176, at 29–35, 92–101
(2010) (discussing Title VII as proposed in the Senate committee bill); Alison Vekshin &
Phil Mattingly, Lawmakers Reach Compromise on Finanical Regulation, BLOOMBERG
(June 25, 2010), http://www.bloomberg.com/news/2010-06-25/lawmakers-reach
-compromise-on-financial-regulation.html (summarizing Title VII as approved by the
House-Senate conference committee). A detailed analysis of Title VII is beyond the scope
of this Article. Major financial institutions have already engaged in heavy lobbying to
influence the adoption of regulations that will implement Title VII. See Asjylyn Loder &
Phil Mattingly, Wall Street Lobbyists Besiege CFTC to Shape Derivatives Rules,
BLOOMBERG (Oct. 13, 2010), http://www.bloomberg.com/news/2010-10-14/wall-street
-lobbyists-besiege-cftc-to-influence-regulations-on-derivatives.html.
365 Dodd-Frank Act § 716(d)(2); see also Andrew Leonard, How the World Works: The
Dodd-Frank Bank Reform Bill: A Deeply Flawed Success, SALON.COM, June 25, 2010.
366 See supra Part V.D.1.b.
367 See supra Part IV.D.1.b & 1.c.