The 2010 Dodd-Frank Act intended to reduce risk to the U.S. financial system may end up forcing business overseas while taxpayer dollars remain at risk of being used in a future bailout.
Singapore’s DBS Bank and Sweden’s Nordea Bank, both of which are the largest banks in their home countries, announced recently that they would not register to trade swaps in the U.S., a new requirement under Dodd-Frank.
“Regional markets are substantially more important to us, and we are working with regulators who are developing a framework across this region,” Tse Chiong Thio, the managing director of DBS, said at a meeting of the International Swaps and Derivatives Association, according to The Wall Street Journal.
Gary Gensler, the chairman of the Commodity Futures Trading Commission, dismissed the banks’ announcement, saying that regulators’ goal was to “get the largest banks in the swaps business,” adding that neither bank could be considered to be among the largest.
Regulators from the European Union, the U.K., France and Japan sent a letter last month warning Gensler against hasty action on rule proposals related to swaps trading between U.S. and foreign firms.
“At a time of highly fragile economic growth, we believe that it is critical to avoid taking steps that risk a withdrawal from global financial markets into inevitably less-efficient regional or national markets,” regulators said in the Oct. 17 letter, The Wall Street Journal reports.
Regulators also expressed concerns regarding conflicts between Dodd-Frank rules and foreign regulations, urging Gensler to “take the time to ensure that U.S. rule-making works not just domestically but also globally” before finalizing any of the rules.
Dodd-Frank may not only be pushing business overseas, but the law is also increasing the exposure of taxpayer dollars to the market, according to The Wall Street Journal.
In July, the Obama administration designated eight financial firms, including several clearinghouses, as “systemically important financial institutions” deemed too big to fail.
While Dodd-Frank was designed to prevent future bailouts like those that occurred in 2008, regulators’ SIFI designations allow the eight firms emergency access to discount loans from the Federal Reserve.