Vanishing Act: U.S. banks moved billions of dollars in trades beyond Washington’s reach

Reuters/Charles Levinson/8-21-2015

“The lobbying blitz helped win a ruling from the CFTC that left U.S. banks’ overseas operations largely outside the jurisdiction of U.S. regulators. After that rule passed, U.S. banks simply shipped more trades overseas. By December of 2014, certain U.S. swaps markets had seen 95 percent of their trading volume disappear in less than two years.

While many swaps trades are now booked abroad, some people in the markets believe the risk remains firmly on U.S. shores. They say the big American banks are still on the hook for swaps they’re parking offshore with subsidiaries.”

MK note:  As Reuters notes, the derivatives positions moved offshore, but the systemic risk remains in the United States. In the event of another meltdown the “big five” will be directly affected and the federal government and Federal Reserve will be called upon once again to socialize both the risks and their effect.  Too the very same specific instruments at the root of the 2007-2008 financial breakdown are alive and well in banking subsidiaries situated off shore and out of the reach of regulators.  For the individual wondering whether or not the present systemic risks are something to worry about, this Reuters article will serve as a functional tutorial and warning shot across the bow.