Bloomberg News

Goldman Sachs, JPMorgan Say Margin Rule Damages U.S. Banks

July 08, 2011

(Updates with JPMorgan and Wells Fargo declining to comment in ninth paragraph.)

July 8 (Bloomberg) -- Proposed Dodd-Frank swaps regulations imposing margin requirements to reduce trading risks will “damage the competitiveness” of foreign-based businesses of U.S. banks compared with their overseas rivals, lawyers for six banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley told regulators.

Applying margin requirements to transactions outside the U.S. “will inevitably encourage customers to do business instead with non-U.S. competitors,” lawyers representing the banks said in a letter dated June 29 and sent to the Federal Reserve, Federal Deposit Insurance Corp., Commodity Futures Trading Commission and other regulators.

The letter, signed by lawyers at Sullivan & Cromwell LLP, was sent also on behalf of Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.

The six banks endorsing the letter executed 97 percent of the $321 trillion of over-the-counter derivatives traded by the top 25 U.S. bank-holding companies as of March 31, according to a June 17 report from the U.S. Office of the Comptroller of the Currency.

Dodd-Frank, the financial-overhaul enacted last July, seeks to reduce risk and boost transparency in the $601 trillion over- the-counter swaps market after largely unregulated trades helped fuel the 2008 credit crisis. The law requires bank regulators to adopt capital and margin requirements for trades not guaranteed by clearinghouses that stand between buyers and sellers.

$2 Trillion

The June 29 letter was sent in response to an April proposal from banking regulators that would govern how swap dealers collect margin for non-cleared trades. The proposed rule may require U.S. banks to set aside $2 trillion in collateral that could be used in more profitable ways, according to an OCC study dated April 15. Public comments to the April proposal are due by July 11.

In the proposal, the banking regulators said foreign swaps pose “no lesser risk” to a U.S. company because of their location. The regulators were concerned that an exemption would allow banks to design swaps to evade the law.

“We believe that the blanket application of the margin requirements to all transactions by non-U.S. operations because of the possibility that derivatives activity may move offshore exceeds the extraterritorial scope and intent of the statute,” the lawyers wrote in the June 29 letter.

Michael DuVally, a Goldman Sachs spokesman, Jerry Dubrowski, a Bank of America spokesman, Mark Lake, a Morgan Stanley spokesman, Danielle Romero-Apsilos, a Citigroup spokeswoman, Elise Wilkinson, a Wells Fargo spokeswoman, and Howard Opinsky, a JPMorgan spokesman, all declined to comment.

--With assistance from Hugh Son in New York and Dakin Campbell in San Francisco. Editors: Lawrence Roberts, William Ahearn

To contact the reporter on this story: Silla Brush in Washington at

To contact the editor responsible for this story: Lawrence Roberts at

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