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Forum Post: Who Needs Derivatives?

Posted 2 years ago on June 9, 2012, 2:34 p.m. EST by arturo (3169) from Shanghai, Shanghai
This content is user submitted and not an official statement

The question, "What would Glass-Steagall do to derivatives holdings?" is heard so often the debates on restoring the Glass-Steagall Act, that one could wonder who is really asking it.

A report on global derivatives concentrations, by Fitch Ratings Service, gives a clue.

It seems that 10 banks in London do 47% of world derivatives. Sixteen banks based in the United States do another 25% of world derivatives ($290 trillion in nominal value), and those 16 have 99.5% of the derivatives exposure of U.S. banks. Six of them — JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo — have 75% of that exposure.

In other words, the great majority of banks in the 7,500 banks based in the United States do little or no derivatives trading, lending, or borrowing, although "banks must hedge" is a watchword of Dodd-Frank and the Volcker Rule. The strong impact Glass-Steagall would have in clearing out the financial derivatives markets, would have very little effect on the operations of that vast majority of commercial banks.

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5 Comments


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[-] 2 points by writerconsidered123 (344) 2 years ago

I'll have to do some fact checking but it sounds about right.

my issue with derivtives is they don't do anything, they are a hundred percent for profit bet that does'nt create jobs does'nt contribute to corp. capital doesn't create R and D money.

what derivatives do do is make a fortune for the richest people (like they need it) and leverage the entire finacial system to the point of breaking it. leaving it up to the american people to bail the banks out if they turn on wall st.

so you could say derivatives are a hedge bet with the american people to back it up if it turns sour I'm sure every american would vote for that, not

[-] 1 points by geo (2638) from Concord, NC 2 years ago

Futures Trading Practices Act of 1992, The Commodity and Futures Modernization Act of 2000, were key in promoting derivatives... there is another law from the 90's that was important that I can't recall off of the top of my head.

Regardless, Glass-Steagall alone if it were reinstated won't fix things.

[-] 1 points by arturo (3169) from Shanghai, Shanghai 2 years ago

Some advocates of Glass-Steagall recommend that a national bank also be established to finance economic development projects.

[-] 2 points by geo (2638) from Concord, NC 2 years ago

Hell, nationalize them all.

[-] 2 points by DKAtoday (28436) from Coon Rapids, MN 2 years ago

NON-Profit. No stinking fat cat executive staff.