The GOP's losing hand on bank reform

Democratic Sen. Blanche Lincoln surprises Washington with a tough stand on derivatives, while Republicans flail

By Andrew Leonard
Salon.com

While discussing J.P. Morgan Chase's blow-out first quarter profits in an earnings call Wednesday morning, CEO Jamie Dimon put a price tag on the derivatives regulation currently being considered by Congress. His bank, reported the New York Times' Cyrus Sanati, stood to lose as much as $2 billion annually, "depending on the real details."

Which really means: Depending on how successful Dimon and his big bank colleagues are in gutting proposals for derivatives reform over the next couple of weeks. The fight over banking reform is suddenly white hot, and derivatives regulation is a critical battlefield.

According to an enlightening new briefing paper by the Brookings Institution's Robert Litan, around 97 percent of the market in currently unregulated derivatives trading is dominated by just five banks. Among them are some familiar names: J.P. Morgan Chase, Citibank, Goldman Sachs, and Bank of America. Combined, the so-called derivative dealers club earns around $30 billion a year from their ability to control this market. Defending this cash machine is an extremely high priority.

So never mind the to-and-fro over the Consumer Financial Protection Agency, or the endless sparring over whether a "resolution authority" proposal will deal with the problem of too-big-to-fail banks. The politics of fighting the CFPA now appear to be too ugly even for the GOP, and the banks don't seem especially worried about any short-term impact on their profits from the resolution authority. Their main focus, according to the Wall Street Journal, is derivatives regulation, for a very simple reason. The measures that will make derivatives trading safer, more transparent and competitive, will unfortunately cut into their profits.

(More here.)