Download PDF Matthew Kluchenek†I.               Introduction Among all the U.S. regulators interested in regulating Bitcoin and virtual currencies, the Commodity Futures […]
John Crawford and Tim Karpoff: A notably bitter battle over financial reform in the wake of the crisis of 2008 has centered on the Swap Pushout Rule: a Dodd-Frank mandate that federally insured depository institutions—i.e., banks—refrain from entering into certain derivatives contracts. After several of the largest U.S. financial institutions successfully lobbied to roll back the Rule, the rollback inspired intense criticism, but the critiques have not accurately reflected what is really at stake for the banks or the public. While the Rule was sold as an anti-bailout measure, this Article argues that the Rule would have been ineffective as a means of preventing further bailouts of systematically important bank holding companies. The Article further argues that the primary reason systematically important bank holding companies care about the Rule is that it costs more to fund these swaps if they are booked at a different legal entity, such as a broker-dealer, rather than at a bank.
This Article will focus on Titles II and VII of the Dodd-Frank Act in order to examine how transacting in derivatives has changed in the aftermath of this legislation and to assess how the bankruptcy of a systemically important financial institution engaged in derivative transactions will be approached.
James Schwartz: The regulation of the swaps market, in which transactions between counterparties in wide-ranging jurisdictions have long been routine, requires international coordination and cooperation. If this were lacking, the consequences could include regulatory arbitrage, outsized compliance costs for, or incomplete compliance by, market participants, the fracturing of liquidity among different jurisdictions, and perhaps even political tensions.
Colleen Baker: Although largely overlooked, failures in PCS systems both domestically and internationally exacerbated the financial crisis of 2008. The Federal Reserve’s critical and significant role in responding to some of these disruptions has similarly been largely overlooked.
Sean J. Griffith: Clearinghouses may not be the last and best solution to the problem of systemic risk and that further regulatory experimentation may be desirable. Policy-makers should strive instead for a structure that fosters diversity and experimentation.
