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Foreign Exchange

FX news: Regulation - Dodd-Frank Wall Street Reform and Consumer Protection Act

The 2,000-plus pages of the Dodd-Frank Wall Street Reform and Consumer Protection Act have now been published and the bill has been voted through the House of Representatives, but the legislation has been subject to dilution and compromise.

Compromises have been made on the Volker rule and bank tax – less compromise, more excision.

The Volker rule – whereby banks would have to divest themselves of all interests in private equity and hedge funds – has been amended to allow them to invest up to 3% of their capital in such vehicles. This is considerably less draconian than Volker’s argued for; the 82-year-old ex-Fed governor is said to be disappointed.

The $19 billion tax on banks to fund the legislation that seemed to be set in stone last Friday will now be dropped entirely; instead $11 billion will be taken from Tarp funds with the balance made up from increased FDIC levies.

A less expected change to the legislation that was swiftly noticed and analysed by Isda was that the Act “could cost US companies as much as $1 trillion in capital and liquidity requirements... [as the] Act could lead to a requirement of initial and variation margin (also referred to as collateral posting) for all over-the-counter (OTC) derivatives that are not cleared, including those involving an end-user.

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