Derivatives Bring Out Wall Street’s Full Armada of DC Lobbyists

The nation’s five largest banks – JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Wells Fargo – which dominate the derivatives business,

have dispatched trade groups, paid lobbyists and their own executives to lobby Washington in full force …

The nation’s five largest banks – JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Wells Fargo – which dominate the derivatives business,

have dispatched trade groups, paid lobbyists and their own executives to lobby Washington in full force …

The nation’s five largest banks – JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Wells Fargo – which dominate the derivatives business,

have dispatched trade groups, paid lobbyists and their own executives to lobby Washington in full force …

Their ire is directed against a provision originated by Arkansas Senator Blanche Lincoln – up for re-election this November – that would prohibit banks from trading derivatives.

It has alarmed the industry because it strikes at the combination of commercial banking and Wall Street trading that defines the modern industry …[br]

Banking executives were caught flat-footed by Mrs. Lincoln’s provision, and many are still seething …

 

By one count the five banks together have mustered more than 130 registered lobbyists, including 40 former Senate staff members and one retired senator, Trent Lott.

The list includes former staff members for the Senate majority and minority leaders, the chairmen and ranking members of the banking and finance committees, and more than 15 other senators.

In the first quarter, the banks spent $6.1 million on lobbying …

The change could cost the industry a lot of money.

Banks reported $22.6 billion in derivatives profit in 2009, according to the Office of the Comptroller of the Currency …

Bankers and Congressional aides say the provision is likely to be weakened or removed, in part because the Obama administration and leading Democrats are receptive to the industry’s pleas …

But the bankers and aides also agree that the focus on derivatives has increased the chances that other controversial proposals will pass, including a ban on “proprietary trading,” or trading in their own accounts …

As we have often noted, derivatives are contracts whose value is determined by something else, as reported as well in this article in the New York Times.

Trading in derivatives is dominated by the nation’s five largest banks,.

and most deals are done in private, making it difficult to compare prices or identify problems.

It appears the bank industry lobbying efforts are having some effect – not surprisingly – within the Obama administration. [br]

As usual, Timothy F. Geithner, the Treasury secretary, has expressed concern about the impact on regulation of derivatives trading.

And on Thursday – the day of the still-mysterious Wall Street panic – the always overrated Paul A. Volcker, the former Federal Reserve chairman,

said in a letter to crucial senators that the proposed ban on proprietary trading,

which the administration has called the “Volcker rule,” was sufficient to address the most worrisome kinds of derivatives trading.

“The provision of derivatives by commercial banks to their customers in the usual course of a banking relationship should not be prohibited,” Mr. Volcker wrote,

proving once again that the Volcker rule is more or less irrelevant to the state of the banking industry today.

In a rare example of economic democracy in the United States these days, one lobbyist said senators may not support Mrs. Lincoln’s language,

but they have political problems with opposing it because of the public’s anger at Wall Street.