Banks Avoid Mass Costs in Rollback of Swaps Push-Out

December 18, 2014

“Swaps are effectively a credit activity, so they really belong in banks. Secondly, pushing out certain swaps would be massively expensive. That's because banks would need to build parallel structures for executing swaps where they have all the technology, all the people and all the reporting facilities in two different places – one structure in the bank and then another in a bank affiliate. Building that kind of duplication of personnel and technology is very expensive. So what does that do? It forces some banking organizations to say 'not worth it.' That both reduces supply and raises cost, and so for the banking organizations that remain in the swaps business, now they have these significantly additional costs that get passed onto end-users.”

– Steven Lofchie comments in Global Capital on the rollback of Section 716 of the Dodd-Frank Act. Banks operating with large swaps trading operations will no longer be required to relocate their trading to a separate legal entity that is not federally insured.