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Fed grants Goldman more time to hive off swaps trading

Traders work at the Goldman Sachs kiosk on the floor of the New York Stock Exchange, January 30, 2013. REUTERS/Brendan McDermid
Traders work at the Goldman Sachs kiosk on the floor of the New York Stock Exchange, January 30, 2013. REUTERS/Brendan McDermid

By Douwe Miedema

WASHINGTON (Reuters) - The U.S. Federal Reserve granted Goldman Sachs two more years to push risky swaps trading into a separate unit, in line with similar delays for other big Wall Street banks.

The Dodd-Frank law, aimed at preventing future taxpayer bail-outs, bans investment banks that trade derivatives from using government backstops such as deposit insurance or access to the Federal Reserve's discount window.

That means banks such as JP Morgan Chase , Citigroup and Bank of America have to set up separate legal entities to trade swaps, a lucrative business that was largely unregulated before the crisis.

Most banks that trade swaps in June received a two-year phase-in period provided under the law from a different bank regulator, the Office of the Comptroller of the Currency.

The $630 trillion swaps market sprang up in the 1980s, enabling companies to exchange virtually any financial risk with other firms. It then quickly mushroomed into a huge playground for hedge funds and other speculators.

With a July 16 deadline looming for the push-out provision to come in force, the Fed was faced with either granting the delay or telling Goldman to stop the business altogether.

"(The Fed) has determined that the potential impact of granting a 24-month transition period is less adverse than the potential impact of denying the transition period," the central bank said in a letter dated July 2.

Goldman Sachs had no immediate comment.

(Reporting by Douwe Miedema)

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