Dodd-Frank 30 Day Countdown: Day 5

Banks Ask for Margin Relief

The largest U.S. banks via a joint letter on June 29, 2011 asked the Commodities Futures Trade Commission (CFTC) to remove the requirement that overseas swap transactions be subject to margin requirements, regardless of whether the swap counterparty is an affiliate of a U.S. organization. This follows on the coattails of a letter written by seven large foreign financial firms in January who asked that their margin requirements be based on their home country regulation.

According to the CFTC and the Federal Reserve, the purpose of large margin requirements is to help to ensure damage can be assuaged if one of the largest banks were to fail.  Banks, on the other hand, fear that these large margin requirements will make them less competitive abroad.

Dodd-Frank is said to reach only as far as institutions that have a “direct and significant connection” to U.S. markets. As currently written, and as pointed out by the banks in the recent letter, the reach of Dodd-frank is likely to impact transactions entered into by a non-U.S. affiliate of a U.S. entity.

-Stephanie Kane co-authored this post