News Release

New Paper: Big Banks Again Putting Taxpayers on Hook with Complex Trades

NPR reported on “All Things Considered” Tuesday evening in “Big Banks Are Once Again Taking Risks With Complex Financial Trades, Report Says” that: “Big banks are skirting the rules on the sale of the complex financial instruments that helped bring about the 2008 financial crisis, by exploiting a loophole in federal banking regulations, a new report says.

“The loophole could leave Wall Street exposed to big losses, potentially requiring taxpayers to once again bail out the biggest banks, warns the report’s author, Michael Greenberger, former director of trading and markets at the Commodity Futures Trading Commission.” Also see from Bloomberg: “Swap Loophole Leaves U.S. Taxpayers on Hook for Trades.”

The American Banker reports in “Will states pick up where feds left off on derivatives regulation?” that “Greenberger discussed the issue during an event sponsored by the nonprofit Institute for New Economic Thinking, alongside Paul Volcker, a former Federal Reserve chairman, and Thomas Hoenig, who recently retired as vice chairman of the Federal Deposit Insurance Corp.

“Both former regulators supported Greenberger’s argument.

“‘I am 90 years old. I started in banking 70 years ago,’ Volcker said, as he criticized the rising influence of financial lobbyists in the nation’s capital, and the urge among financial firms to roll back regulations when the economy is strong. ‘What strikes me is I’ve seen it all before, over and over again.'”

Available for a limited number of interviews for the next week, with more availablity thereafter:

MICHAEL GREENBERGER, via Ben Yelin, byelin@law.umaryland.edu and Janet Terry, jterry@law.umaryland.edu
Now a professor at the University of Maryland Francis King Carey School of Law, Greenberguer summarizes his findings in “Too Big to Fail Banks’ Regulatory Alchemy“: “Thus, as the tenth anniversary of the Lehman failure approaches, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers to their newly deguaranteed foreign affiliates. But, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer.”

He concludes that with relief “unlikely to be forthcoming from either the Trump administration or a Republican-controlled Congress, some other means will have to be found to avert another multitrillion dollar bank bailout and/or financial calamity caused by poorly regulated swaps on the books of big U.S. banks. This paper notes that the relevant statutory framework affords state attorneys general and state financial regulators the right to bring so-called ‘parens patriae’ actions in federal district court to enforce, inter alia, Dodd-Frank on behalf of a state’s citizens. That kind of litigation to enforce the statute’s extraterritorial provisions is now badly needed.”