Waters calls for Increased Scrutiny of Overseas Derivatives Trading

Press Release

In the wake of recent reports that U.S. banks are restructuring overseas derivatives transactions to sidestep critical protections enacted under the Wall Street Reform Act, Congresswoman Maxine Waters (D-CA), Ranking Member of the Financial Services Committee, has called on the top U.S. derivatives regulator to "thoroughly investigate" the removal of U.S. guarantees from arrangements between U.S. banks and their foreign affiliates.

In a letter to new Commodities Futures Trading Commission (CFTC) chair Timothy Massad, Waters expressed concern about this emerging practice and urged an investigation "focusing on the substance, rather than form." Specifically, the Democrat requested that the CFTC "consider the presence of other non-traditional guarantees and arrangements that, viewed at the entity-level, support the creditworthiness of foreign affiliates."

"Given that large Wall Street banks routinely transact half of their swaps activities through foreign subsidiaries, it is important that U.S. market regulators both work with each other, and with global regulators, towards the goal of international regulatory convergence. As that process continues, we must ensure that U.S. banks are not importing unregulated derivatives risk back to the United States via any changes to the guarantee relationship with their foreign affiliates," she wrote.

Waters points out that regardless of the guarantee, swaps transactions of foreign guaranteed affiliates transfer risk back to the United States -- as if transaction were entered into directly by the U.S. bank.

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